Consumer prices rose at the slowest pace since April 2021 as inflation showed further signs of cooling in May, according to the latest data from the Bureau of Labor Statistics released Tuesday morning.
The Consumer Price Index (CPI) revealed headline inflation rose 0.1% over last month and 4% over the prior year in May, a slowdown from April's 0.4% month-over-month increase and 4.9% annual gain.
Both measures were roughly in line with economist forecasts of a 0.1% month-over-month increase and a 4.1% annual increase, according to data from Bloomberg.
Although the 4% jump in headline inflation represents a continued slowdown, it's still significantly above the Federal Reserve's 2% target.
The Fed has been raising interest rates to try to bring down inflation, but the central bank risks sending the economy into a recession by hiking rates too high too fast. The Fed has signaled it could pause its hikes, saying it would continue to assess incoming data ahead of the June meeting.
On a "core" basis, which strips out the more volatile costs of food and gas, prices in May climbed 0.4% over the prior month and 5.3% over last year. Both measures were also in line with economist expectations.
Core inflation remained especially sticky last month as rent prices continue to surge. The index for both rent and owners' equivalent rent rose 0.5% each. Owners' equivalent rent is the hypothetical rent a homeowner would pay.
The shelter index, which jumped 8% annually and 0.6% between April and May, was the largest factor in the monthly increase of core inflation, accounting for over 60% of the total increase. Among the other indexes that rose in May was the index for used cars and trucks, which increased 4.4% for the second straight month, and the index for motor vehicle insurance, which increased 2%, the BLS noted.
The energy index decreased 11.7% for the 12 months ending in May, while the food index increased 6.7% over the last year. The energy index decreased 3.6% from April to May on a seasonally adjusted basis, led by a 7.7% drop in fuel oil prices, while food prices rose 0.2%.
Egg prices fell a whopping 13.8% in May after dropping 1.5% in April and 10.9% in March.
US stocks edged higher in early trading following the release of the data. Treasury yields fell about 7 basis points to around 3.70%.
The inflation data set will be a critical economic indicator ahead of the Federal Reserve's monetary policy decision on Wednesday.
It's the last piece of data following a strong May jobs report, coupled with resilient readings on both the services and manufacturing sectors.