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Low Inflation In May Likely To Boost Expectations For Fed Rate Cut

Low Inflation In May Likely To Boost Expectations For Fed Rate Cut

Inflation edged only slightly higher in May, with prices up just 0.1%, a tiny uptick that will likely boost expectations for an interest rate cut by the Federal Reserve.

The Bureau of Labor Statistics said the Consumer Price Index for All Urban Consumers increased 0.1% in the month on a seasonally adjusted basis after rising 0.3% in April. It was the smallest increase in inflation since January.

Wall Street was focused intently on the consumer price report due to expectations the Fed will cut the cost of borrowing rates this year. The nearly flat inflation rate — interpreted as a sign that economic growth may be slowing — will spur expectations for a rate cut sooner rather than later.

The CPI measures the price of goods including food, electricity and rent. The index tracking the price of food rose 0.3% in May after declining in April, and the government said food accounted for nearly half of the overall May increase.

The energy index fell, led by a drop in the cost of gasoline.

Core CPI Misses Estimates 

Stripping out the volatile food and energy sectors, the so-called Core CPI was up 0.1% for a fourth straight month, lower than the 0.2% analysts had expected.

The Core CPI rose 2% year-over-year, just under the 2.1% estimate.

The broader CPI including food and energy increased 1.8% year-over-year, slightly under the 1.9% expectation.

Costs for housing, medical care, airfares, education, home furnishings and new cars all rose in May, the BLS said.

The indexes for used vehicles, recreation and car insurance were among those that declined over the month.

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