As Summer Heats Up, Inflation Cools Down to 4% in May

Despite predictions of a recession, the economy has maintained its momentum.

June 14, 2023

ALEXANDRIA, Va.—Inflation rose 4% in May year over year, which was around half of the 9.1% peak in June 2022, reports the Wall Street Journal. May’s reading was down from April’s 4.9% increase.

Consumer core prices, which excludes food and energy categories, was up 5.3% year over year but down from April’s 5.5% reading. Economists widely believe that core prices are a better predictor of future inflation. According to the Journal, core prices are up because of an increase in housing costs, yet apartment rent has cooled significantly.

Rent price increases are now under 2% over the 12 months—ending in May—from double-digit increases a year ago. Because rental contracts are signed for six or 12 months on average, it can take time for the decrease to show up in inflation data.

The Federal Reserve is meeting this week and will decide whether to hold on another interest rate increase or not. The Fed has been aggressively increasing interest rates to stifle inflation. The current benchmark rate is now between 5% and 5.25%, which is the highest it’s been in 16 years.

“Directional progress should not be confused with mission accomplished,” Sarah House, senior economist at Wells Fargo, told the Journal.

Consumer prices were up 0.1% in May, which is down from April’s 0.4% increase. Core consumer prices rose 0.4% in May from the prior month, the same pace as in April and March, suggesting underlying price pressures remain firm, according to the Journal.

Inflation was pushed by increased housing, used-vehicle and food costs, said the Department of Labor, while gas prices were down 5.6% in May from April as other energy prices also dropped.

Though predictions of a recession have been commonplace, the economy has maintained its momentum with a robust job market and increased consumer spending; however, the Journal reports of one measure showing that economic output is falling.

“A possible credit crunch following the March collapse of a few regional banks could crimp the economy,” writes the Journal.

The Fed may need time to assess whether its rate policies and banking-sector stresses are exerting sufficient downward pressure on prices, Aichi Amemiya, U.S. economist at Nomura Securities, told the Journal, referring to the slowing of price increases.

Check out our article The Elephant in the Room in the June issue of NACS Magazine to gain insight into the effects of inflation on the convenience industry.