Inflation Has Likely Been Cut in Half but Is Still Too High

The Labor Department’s report on the consumer-price index, a closely watched gauge of goods and services prices, will be released on Tuesday at 8:30 a.m. ET.

Federal Reserve officials are meeting June 13-14 to decide their next steps to cool inflation, which they would like to see at 2%. Fed officials could hold interest rates steady at the meeting, while preparing to increase rates again in the summer or the fall if they don’t think enough progress has been made on inflation.

The so-called core consumer-price index, which excludes volatile food and energy categories, is estimated to have risen 5.3% in May from a year earlier, down from 5.5% in April. Economists see core prices as a better predictor of future inflation. Core prices remain elevated in part because an earlier surge in housing-rental prices continues to show up in the inflation figures.

April’s increase in inflation was driven by housing costs, for instance, along with higher gasoline and used-car prices, the Labor Department said last month.

The Fed has aggressively raised rates from low levels starting last year to slow economic growth and tame inflation. Fed officials in May raised the benchmark interest rate to the current range between 5% and 5.25%, the highest level in 16 years. 

Fed officials are looking for signs that inflation is moving closer to its target. Despite its efforts, inflation remains stubbornly high.

“Making slow progress is the big problem,” said Omair Sharif, who leads forecasting firm Inflation Insights. “There’s still a lot of debate among Fed officials over ‘how much more do we need to do?’”

The U.S. economy has maintained momentum this year, staving off predictions of recession. The job market remains robust and consumers have boosted their spending, though one measure shows economic output is falling. A possible credit crunch following the March collapse of a few regional banks could crimp the economy.

The Fed may need time to assess whether its rate policies and banking sector stresses are exerting sufficient downward pressure on prices, said Aichi Amemiya, U.S. economist at Nomura Securities, referring to the slowing of price increases. 

While inflation has cooled significantly, higher prices for many goods and services are weighing on household spending decisions.

Geovanni Williams, 45 years old, said the biggest hit to his wallet recently is higher prices for his two children to play on traveling sports teams.  

“Airline tickets, hotels—all of that has gone up. The fees to participate in these tournaments have gone up,” said Williams, who lives in Fairfax, Va., and works at a credit union. “Prior to the pandemic, those might have been no more than $40 for a weekend pass. Now they’re more like $65, $75, $85.”

His 16-year-old daughter recently played in basketball tournaments in Alabama and Virginia Beach, and she will soon travel to events in Chicago and Atlantic City, N.J. 

Williams said he has cut his spending to make up the difference, shifting from takeout dinners from Cava Mezze to preparing food at home. He also canceled his cable plan. “I was paying $230 a month—and with all the sports, my kids are never here anyway,” he said.

Write to Gwynn Guilford at [email protected]