Consumer inflation drops, but remains above the Fed's target rate

June 13 (UPI) -- Energy prices helped drag consumer-level inflation lower over the 12-month period to May, though so-called core inflation remains well above the Federal Reserve's 2% target rate, the Labor Department reported Tuesday.

The Bureau of Labor Statistics showed the Consumer Price Index increased by 0.1% last month, following a 0.4% month-on-month gain to April. Over the 12-month period to May, CPI increased 4%, down from the 4.9% reading over the year to April, to reach the slowest pace of increase since March 2021.

"The energy index fell 3.6% in May after rising 0.6% in April," the monthly report on consumer-level inflation read. "The gasoline index decreased 5.6% in May, following a 3.0% increase in the previous month."

Energy prices are in retreat amid concerns about lingering inflation and weak economic growth in the world's largest economy. A decision by Saudi Arabia to trim oil production in July did nothing to spoil the mood.

The price for Brent crude oil, the global benchmark, was trading at around $74 per barrel at the start of the trading day on Tuesday, down 13% from the beginning of the year.

Retail gasoline prices averaged $3.59 for a gallon of regular unleaded on Tuesday. Demand is low during winter months, with gas starting the year at around $3.22 per gallon. But the price at the pump is $1.40 less than year-ago levels.

Prices for food from the grocery store remain elevated at 8.3% over the 12-month period to May. At the wholesale level, however, prices are moderating and relief may be coming, particularly for staples such as eggs.

So-called core inflation, which strips out volatile food and energy prices, came in at 5.3% to May, and the 0.4% month-on-month increase marks the third straight month for that level of increase.

President Joe Biden in a statement released about an hour after Labor Department figures were published said that his administration's plans for lowering the cost of living for everyday families are working.

"Annual inflation is now at the lowest level since March 2021, and less than half of what it was last June," he said. "After gas and grocery prices increased rapidly last year due to the war in Ukraine, inflation has fallen for 11 months in a row."

Consumers, however, remain somewhat pessimistic. A survey of consumer sentiment from the Federal Reserve Bank of New York showed the one-year expectation for consumer-level inflation is at its lowest since May 2021, though most felt inflation would remain entrenched over the long term.

The annual CPI peaked at 9.1% in June 2022, which was the biggest increase since November 1981.

The latest CPI reading will be fodder for the Federal Reserve when it meets later this week to consider its next move in the fight against consumer-level inflation.