Fed-monitored inflation index lowest level since April 2021; ‘core’ prices remain elevated 

An inflation index that is closely monitored by the Federal Reserve tumbled last month to its lowest level since April 2021, pulled down by lower gas prices and slower-rising food costs, according to the Associated Press.

At the same time, consumers barely increased their spending last month, boosting it just 0.1%, after a solid 0.6% gain in April.

The inflation index showed that prices rose 3.8% in May from 12 months earlier, down sharply from a 4.4% year-over-year surge in April. And from April to May, prices ticked up just 0.1%.

Still, last month’s progress in easing overall inflation was tempered by an elevated reading of “core” prices, a category that excludes volatile food and energy costs. That underscored the Fed’s belief that it will need to keep raising interest rates to conquer high inflation.

Core prices rose 4.6% in May from a year earlier, down slightly from the annual increase of 4.7% in April. It was the fifth straight month that the core figure was either 4.6% or 4.7% — a sign that the Fed’s streak of 10 rate hikes over the past 15 months hasn’t subdued all categories of prices. From April to May, core prices increased 0.3%, a pace that, if it lasts, would keep inflation well above the Fed’s 2% target.

Today’s government report arrives two days after Chair Jerome Powell said the Fed was prepared to keep interest rates at their peak for an extended period to tame the still-rising prices that have shrunk Americans’ inflation-adjusted paychecks and disrupted businesses. The Fed’s policymakers, as a group, envision two additional rate hikes this year.

The inflation gauge that was issued today, called the personal consumption expenditures price index, is separate from the government’s better-known consumer price index. The government reported earlier this month that the CPI rose 4% in May from 12 months earlier.