A closely watched measure of U.S. inflation trailed forecasts in May, reinforcing the case among investors for the Federal Reserve to cut interest rates.
The core consumer price index, which removes energy and food costs, rose 2% from a year earlier, according to a Labor Department report Wednesday. Economists surveyed by Bloomberg had predicted a 2.1% increase.
Stocks declined on the report, which follows other signs of slowing economic growth at home and abroad. The market-implied odds of a July Fed rate cut increased, with futures trading now indicating almost a quarter-point of easing in the next two months.
“There are limited inflation pressures in the U.S. economy right now,” said Leslie Preston, senior economist at Toronto-Dominion Bank. “It gets harder and harder to dismiss the benign inflation on any one factor or any month-to month swing.”
Core prices rose 0.1% from the previous month for a fourth straight time, missing estimates of a 0.2% gain. The broader CPI increased an annual 1.8%, less than projected.
A sharp drop in used-car prices helped drive the monthly change, while cheaper gasoline played a role in keeping broader inflation tame. Energy prices fell 0.6% from the prior month and 0.5% from a year earlier.
Fed policymakers meet next week. The central bank’s preferred inflation measure, based on personal consumption expenditures, tends to run slightly below the Labor Department’s CPI.
Powell, in a speech last week, opened the door to interest-rate cuts after saying in May that below-target inflation was due to transitory factors. Bond-market investors expect the central bank to lower rates as it tries to brace the economy for slowing global growth, lower corporate spending and a weaker consumer outlook.