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June 13, 2023, 8:07 a.m. ET 21 minutes ago
May Inflation Report
Price Increases Are Expected to Ease Again
The rate of inflation probably moderated last month, another sign of cooling as the Federal Reserve considers pausing interest rate increases.
Inflation is easing, but is it enough for the Fed?
Federal Reserve officials are expected to hold interest rates steady when they announce their June policy decision on Wednesday, but they face one more wild card before they make their choice: the Consumer Price Index report, set for release Tuesday at 8:30 a.m. Eastern.
The Fed is now 15 months and 10 consecutive rate increases into its fight against rapid inflation, a campaign that has pushed borrowing costs above 5 percent for the first time since 2007. Given how much it has already done to slow the economy, officials are increasingly in favor of taking a break to assess the results: Pausing could give policymakers more time to see if higher interest rates are cooling growth enough to put inflation on a pathway back toward a more normal 2 percent pace.
Tuesday’s inflation report, which covers May, will offer the latest evidence on how well the fight against inflation is working.
The annual inflation rate probably cooled last month, easing to 4.1 percent from 4.9 percent in April, according to economists surveyed by Bloomberg. That would leave the inflation rate at less than half of last summer’s 9 percent peak. And a closely watched “core” measure, which strips out volatile food and fuel prices to give a sense of underlying trends, is also expected to slow.
A notable deceleration could help central bankers feel more comfortable leaving rates unchanged this month.
But there is no guarantee inflation will come down as much as expected — it has defied economists’ forecasts many times over the past two years. And even if year-over-year inflation is pulling back, officials are also likely to watch the month-on-month pace of increase. Monthly core inflation is expected to remain at 0.4 percent, a pace that economists at JPMorgan called “uncomfortably high” in a note previewing the release.
A hot inflation reading could make the Fed’s decision more complicated, perhaps nudging it toward a more aggressive path. Investors already expect the central bank to restart rate increases in July, and are penciling in a small chance that Fed officials could raise rates this week.
Economists at Barclays wrote that while they are expecting the Fed to skip a rate move this week, “our conviction is limited.” A bigger-than-expected inflation number on Tuesday, they wrote, “would likely be sufficient to tip the balance to a hike, depending on the composition.”
The Fed shoots for 2 percent inflation over time, a goal it defines using a different measure, the Personal Consumption Expenditures index. Tuesday’s data will feed into P.C.E. inflation figures — set for release on June 30 — and offer a more timely snapshot of inflation trends, which is what makes the report so important.
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