Inflation slows in May, with consumer prices up 3.3% from a year ago


Prices rose 3.3 percent in the year ending in May, as inflation still hasn’t returned to normal despite a long battle to wrestle it down.

Fresh data released from the Bureau of Labor Statistics on Wednesday showed slight improvement from April when prices rose at an annual rate of 3.4 percent. Prices were flat compared to April.
The Federal Reserve has been putting the economy under pressure through higher interest rates since March 2022, trying to control prices that grew at the fastest pace in four decades. The latest snapshot will get a close study by central bankers as they wrap up their two-day policy meeting later Wednesday. By the afternoon, they’re all but guaranteed to leave interest rates unchanged, holding them between 5.25 and 5.5 percent — where they’ve sat since July, at the highest level since 2001.
Annual change in average hourly earnings for non-managerial employees, through December of each year
That lack of action is widely expected. What Wall Street, Washington, and businesses and households around the country will watch eagerly is where Fed policymakers think the economy is headed. Officials are set to release a fresh set of economic projections at 2 p.m. Eastern, laying out their expectations for inflation, the unemployment rate, overall growth, and interest rates.
Monthly change in inflation
Note: Seasonally adjusted
When the year started, the central bank was looking at three rate cuts in 2024. But because inflation came in hotter than expected from January to March, analysts now bet officials will pencil in only one or two cuts this year.
“It will be interesting to see what signal they take from the data,” said Bill English, former head of the Fed’s Division of Monetary Affairs who is now at Yale School of Management. “‘Why’ are they seeing less easing will be as important as ‘how much’ less?”
More clarity will come at 2:30 p.m. when Fed Chair Jerome H. Powell appears at a news conference. Questions will probably hit on the timing for rate cuts, what it will take to bring borrowing costs down, and whether he is confident inflation will keep moving toward the Fed’s target. (The Fed aims for a 2 percent rise in inflation each year, though it uses a different gauge than the one released Wednesday.)
Key to leaders’ assessment is whether they think inflation is steadily falling, or whether the unwanted surprises from the beginning of the year signal something more lasting and worrisome. Some economists speculate that seasonal glitches that often interfere with January data — for example, the resetting of annual insurance costs — seeped into the entire first quarter and interfered with the central bank’s read on inflation.
But others wonder whether price increases are simply sticking. Last month, Fed governor Christopher Waller said progress “may be a lot slower than we saw at the end of last year," when inflation came down markedly.
“Whatever the factors were in the first three months, they haven’t completely disappeared,” Waller said at the Peterson Institute for International Economics. "There might be something much more fundamental going on than seasonal. I don’t know exactly what that would be. We’re still all trying to figure out what it is.”
Some markers of the inflation report were all too familiar, namely, housing costs, which have increased more rapidly than normal for months. Many real-time measures of rent costs show rents easing considerably, or even falling. But those shifts have taken way longer than expected to show up in official data, frustrating Fed officials and economists who fear the rental figures are keeping overall inflation artificially high.
Still, the Fed has made major progress since inflation peaked two years ago at 9.1 percent, and the economy is roaring. Employers added a whopping 272,000 jobs in May. Wages continue to outpace inflation, and there’s no recession in sight. Yet the sting of high prices has still left businesses, workers, and families with the sense that the economy isn’t working for them.
That disconnect is proving to be a major issue for President Biden’s reelection campaign, as he tries to tout the economic turnaround since the depths of the pandemic. Former president Donald Trump, meanwhile, has seized on high inflation and subsequent interest rate hikes to argue Americans are suffering under the weight of steep mortgage rates and sticker shock for the basics, even though economists estimate that many of his proposals would send inflation even higher.
For its part, the Fed tries hard to steer clear of politics, and it takes much of its reputation on independence from the rest of Washington. But if officials still need a few more months to feel comfortable cutting rates, they could end up making an initial move right before the election. This week, top Democrats on the Senate and House budget committees called for the Fed to lower rates, raising concerns that holding out could jeopardize the strong job market.
Officials insist they will make decisions only as the data unfolds.
“It’s hard enough to get the economics right here," Powell said last month. "These are difficult things, and if, if we were to take on a whole, another, set of factors and use that as a new filter, it would reduce the likelihood we’d actually get the economics right.”

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