U.S. monthly inflation was unchanged in May as a modest increase in the cost of services was offset by the largest drop in goods prices in six months, drawing the Federal Reserve closer to start cutting interest rates later this year.
The report from the Commerce Department on Friday also showed consumer spending rose marginally last month.
It raised optimism the U.S. central bank could engineer a much-desired “soft landing” for the economy in which inflation falls without triggering a recession and a sharp rise in unemployment. Traders raised bets for a Fed rate cut in September.
‘Better behaved’
“It helps the argument inflation is looking better-behaved, which may well open the door to interest rate cuts later in the year,” said James Knightley, chief international economist, ING. The flat reading in the personal consumption expenditures (PCE) price index last month followed an unrevised 0.3% gain in April, the Commerce Department’s Bureau of Economic Analysis said.
Goods prices dropped 0.4%, the most since November. There were big declines in prices of recreational goods and vehicles as well as furnishings and durable household equipment. The price of gasoline and other energy goods dropped 3.4%. Clothing and footwear were also cheaper last month.
The cost of services rose 0.2%, lifted by higher prices for housing and utilities as well as healthcare.
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