A greater-than-expected deceleration in U.S. consumer-price inflation in May could give some pause to Federal Reserve officials as they consider further interest-rate increases, Labor Department figures showed Wednesday.
While the data can be volatile month to month, often depending on energy and food prices, the underlying measure of inflation has slowed to 1.7 percent from 2.3 percent in January, raising the risk that price gains will drift further from the Federal Reserve’s target.
The decrease in the headline index was led by energy including the biggest drop in gasoline since February 2016 though prices also fell in apparel, airfares, communication and medical-care services.
Central bankers conclude a two-day meeting in Washington later Wednesday, where they are widely expected to raise the benchmark interest rate for the second time this year amid a tightening labor market. Additional hikes, however, may be contingent on a rebound in underlying inflation.
While softer inflation boosts real earnings growth, it also implies more slack in the economy, providing the Fed space to move even more slowly.
Source: Bloomberg Pro Terminal
Jr Trader Petar Milanov
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