U.S. Consumer Prices Unexpectedly Flat In May, Annual Growth Slows To 3.3%

(RTTNews) - With a steep drop in gasoline prices partly offsetting a continued increase in shelter prices, the Labor Department released a report on Wednesday showing U.S. consumer prices were unexpectedly flat in the month of May.

The Labor Department said its consumer price index came in unchanged in May after rising by 0.3 percent in April. Economists had expected consumer prices to inch up by 0.1 percent.

The report showed a substantial pullback by gasoline prices, which plunged by 3.6 percent in May after surging by 2.8 percent in April.

Overall energy prices subsequently also showed a notable decrease, tumbling by 2.0 percent in May following a 1.1 percent jump in April.

Excluding the steep drop in energy prices and an uptick in food prices, core consumer prices rose by 0.2 percent in May after climbing by 0.3 percent in April. Core prices were expected to rise by another 0.3 percent.

The modest increase in core prices partly reflected the continued advance by prices for shelter, which climbed by 0.4 percent for the fourth consecutive month.

Prices for medical care, used cars and trucks, and education also increased during the month, while prices for airline fares, new vehicles, communication, recreation, and apparel decreased

The report also said the annual rate of consumer price growth slowed to 3.3 percent in May from 3.4 percent in April. Economists had expected the pace of growth to remain unchanged.

The annual rate of core consumer price growth also slowed to 3.4 percent in May from 3.6 percent in April. The pace of growth was expected to dip to 3.5 percent.

"The further moderation in the CPI readings in May (flat headline and up just 0.2% at the core) will be welcomed by Fed officials and keeps alive the prospect of the Fed starting to cut rates in September," said Nationwide Chief Economist Kathy Bostjancic.

She added, "It could encourage some Fed officials to pencil in two rate cuts for this year, who otherwise might have been leaning towards less cuts."

On Thursday, the Labor Department is scheduled to release a separate report on producer price inflation in the month of May.

Producer prices are expected to inch up by 0.1 percent in May after climbing by 0.5 percent in April, while the annual rate of producer price growth is expected to accelerate to 2.5 percent from 2.2 percent.