WASHINGTON: US consumer prices unexpectedly fell in May and retail sales recorded their biggest drop in 16 months, suggesting a softening in domestic demand that could limit the Federal Reserve’s ability to continue raising interest rates this year.
The Fed on Wednesday increased borrowing costs for the second time this year, while acknowledging the recent moderation in inflation pressures. Policymakers continued to expect the economy to expand at a “moderate” pace and labour market conditions to “strengthen somewhat” further. “The latest inflation data have undoubtedly helped the case of officials arguing for waiting more than three months for the next move,” said Jim O’Sullivan, chief US economist at High Frequency Economics in Valhalla, New York.
The Labour Department said its Consumer Price Index dipped 0.1 per cent last month, weighed down by declining prices for gasoline, apparel, airline fares, motor vehicles, communication and medical care services, among others.
The second drop in the CPI in three months followed a 0.2 per cent rise in April. In the 12 months through May, the CPI rose 1.9 per cent, the smallest increase since last November, after advancing 2.2 per cent in April.
The year-on-year gain in the CPI in May was still larger than the 1.6 per cent average annual increase over the past 10 years. Economists had forecast the CPI unchanged last month and advancing 2.0 per cent from a year ago.
The so-called core CPI, which strips out food and energy costs, rose 0.1 per cent in May after a similar gain in April as rents continued to increase moderately. The core CPI increased 1.7 per cent year-on-year, the smallest rise since May 2015, after advancing 1.9 per cent in April. — Reuters