US inflation eases.. prices unchanged

US prices were little changed in May while consumer spending rose moderately, a trend that could move the Federal Reserve closer to starting to cut interest rates this year.

The Commerce Department’s Bureau of Economic Analysis said on Friday that the flat reading on the personal consumption expenditures (PCE) price index last month followed an unrevised 0.3% increase in April. In the 12 months through May, the PCE price index rose 2.6% after rising 2.7% in April.

Economists had forecast the PCE price index to be unchanged for the month and rise 2.6% on a year-over-year basis, according to Reuters.

Inflation has eased after a surge in the first quarter, as the US central bank’s 525 basis point rate hikes since 2022 have slowed domestic demand. However, inflation remains above the Fed’s 2% target.

Excluding the volatile food and energy components, the PCE price index rose 0.1% last month. This came after a 0.3% increase in April.

Core inflation rose 2.6% year-on-year in May, the smallest increase since March 2021, after rising 2.8% in April. The Federal Reserve monitors the PCE price index data to inform its monetary policy decisions.

The US central bank has kept its benchmark overnight interest rate at its current range of 5.25% to 5.50% since July. Although policymakers have recently adopted a more hawkish outlook, financial markets expect the Fed to begin its easing cycle in September.

The report also showed that consumer spending, which accounts for more than two-thirds of US economic activity, increased 0.2% last month after rising 0.1% in April. Factors such as inflation, higher borrowing costs, slower wage growth and shrinking savings are holding back spending rates.

Consumer spending slowed sharply in the first quarter, leading the U.S. economy to grow 1.4%, down from about 3.4% in the fourth quarter.

Growth estimates for the second quarter are expected to be less than 2%.