US Core Inflation Rises Less Than Forecast For Fourth Month

Grocery Prices

However, prices for groceries rose 0.3% after declining in April. While shoppers saw higher costs for cereals, fish and bacon, egg prices dropped almost 3%. Ground beef prices rose, likely stemming from a record low cattle herd and high demand.

One of the key drivers of inflation in recent years has been housing costs — the largest category within services. Shelter prices rose 0.3% for a second month.

Excluding housing and energy, services prices rose 0.1%, a deceleration from the prior month. From a year ago, those costs advanced 2.9%. In addition to declines in travel-related categories, recreational services, including admissions to sporting events, also declined in a sign of a pullback in discretionary spending.

While central bankers have stressed the importance of looking at such a metric when assessing the overall inflation trajectory, they compute it based on a separate index.

That measure — known as the personal consumption expenditures price index — doesn’t put as much weight on shelter as the CPI, which helps explain why it’s trending closer to the Fed’s 2% target. A government report on producer prices due Thursday will offer insights on additional categories that feed directly into the PCE, which is scheduled for later this month.

In addition to seeking fairness in bilateral commerce and shoring up national industrial security, the Trump administration says tariffs will help stoke domestic manufacturing and investment over the longer term. Critics say that the tariffs themselves are actually adding to a host of challenges already inhibiting reshoring.

Inflation Outlook

Going forward, retailers like Walmart Inc. and Target Corp. have warned of higher prices, as have carmakers including Ford Motor Co. and Subaru Corp. A Fed survey of economic activity last week showed prices advanced at a “moderate” pace across the US in recent weeks, with some regions expecting future increases to be “strong, significant, or substantial.”

Much of the outlook depends on how trade talks evolve. The US and China have reached a consensus to de-escalate their trade war. The temporary agreement that’s currently in place has already helped lower several measures of consumers’ inflation expectations. 

Central bankers also pay close attention to wage growth, as it can help inform expectations for consumer spending — the main engine of the economy. A separate report Wednesday that combines the inflation figures with recent wage data showed real average hourly earnings climbed 1.4% from the year before.