US prices didn’t rise last month for the first time since November
(CNN) — Prices in the US didn’t rise in May, marking the first time since November that there was no monthly increase.
The Personal Consumption Expenditures price index — a closely watched inflation gauge that the Federal Reserve uses for its 2% target — was unchanged from April and slowed to 2.6% for the 12 months ended in May from 2.7% the month before, according to Commerce Department data released Friday.
Falling gas prices (down 2.1% for the month) and cheaper goods prices (down 0.4%) helped to slow overall inflation, according to the report. Food prices increased a modest 0.1%.
Excluding energy and food — categories that tend to be quite volatile — the core PCE price index increased by 0.1% for the month, cooling to a fresh three-year low of 2.6% from 2.8% the month before.
Friday’s report came in line with expectations.
The Commerce Department’s monthly Personal Income and Outlays report also includes critical data on how Americans earn, spend and save.
Consumer spending, which is a significant driver of economic activity, increased 0.2% for the month, accelerating from 0.1% the month before. Excluding inflation, real spending grew 0.3%.
A 0.5% increase in personal income as well as disposable income (which excludes taxes) helped boost spending levels. As such, people were able to put more money away: The personal savings rate ticked up to 3.9%, its highest level since January.
Earlier this month, doubt was cast on the strength of that economic engine when retail sales data showed a lower-than-anticipated increase for May. While cheaper gas prices factored into the overall pullback, the modest gain raised some alarm bells that Americans were finally close to being tapped out.
The Fed’s next move
“The report couldn’t have been much better for the economy at this stage, as consumers banked an income boost while inflation stayed flat from the previous month,” Robert Frick, corporate economist with Navy Federal Credit Union, said in a statement. “More income is key to improving spending, which has been lackluster recently, and weaker inflation gives the Fed more leeway to cut rates, especially if the job market flags.”
Economists have said that slowing inflation combined with the ongoing softening in economic growth could likely ensure at least one Fed rate cut this year.
“This is the lowest monthly core inflation increase that we’ve seen this year and it furthers the narrative that the disinflationary trend that stalled during the first quarter is back to life again,” Olu Sonola, Fitch Ratings’ head of US economic research, said in commentary issued Friday. “Core inflation is now below the year-end median estimate that was penciled in at the last [Fed meeting]. If the trend we saw this month continues consistently for another two months, the Fed may finally have the confidence necessary for a rate cut in September.”
The May PCE data boosted investors’ optimism for a September rate cut. On Friday morning, the probability increased to 61.1% from Thursday’s 59.5% for the federal funds rate moving a quarter-point lower, according to the CME FedWatch tool.
This story is developing and will be updated.