Prices in the US were unchanged in May while consumer spending rose modestly, a trend that could push the Federal Reserve closer to starting to cut interest rates later this year.
The flat reading in the personal consumption expenditures (PCE) price index last month followed an unrevised 0.3% increase in April, the Commerce Department's Bureau of Economic Analysis reported on Friday. In the 12 months to May, the PCE price index rose 2.6% after rising 2.7% in April.
Economists polled by Reuters had forecast the PCE price index unchanged for the month and up 2.6% year-on-year.
Inflation eased after rising in the first quarter as a 525 basis point interest rate hike from the US central bank through 2022 cooled domestic demand. However, inflation continues to grow above the Fed's 2% target.
Excluding volatile food and energy components, the PCE price index rose 0.1% last month. This was followed by an upwardly revised increase of 0.3% in April. The core PCE price index was previously reported to have risen 0.2% in April.
Core inflation rose 2.6% year-on-year in May, the smallest rise since March 2021, after rising 2.8% in April. The Fed closely follows PCE prices for monetary policy. A monthly inflation reading of 0.2% over time is needed to bring inflation back to target.
The Fed has kept the benchmark overnight interest rate in the current range of 5.25%-5.50% since last July. Although policymakers have recently taken a more hawkish view, financial markets expect the Fed to begin its easing cycle in September.
Consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.2% last month after rising 0.1% in April, according to the report. Consumer spending fell sharply in the first quarter, helping limit the economy to an annual growth rate of 1.4%. The economy grew at a rate of 3.4% in the fourth quarter.
Growth estimates for the second quarter are mostly below the 2% rate.
