According to the Bureau of Labor Statistics’ latest price inflation data, CPI inflation in May rose for the second month in a row.

The year-over-year change in the CPI rose by 2.4 percent in May, slightly accelerating over April’s year-over-year increase of 2.3 percent. The month-over-month change (seasonally-adjusted) was positive again in May, rising 0.1 percent, although May’s increase, with the exception of March this year, was the smallest month-over-month increase since mid-2024.

Much of this was fueled by ongoing increases in the cost of shelter and services. Shelter, for instance, rose by 3.9 percent, year over year, while services (less energy services) rose by 3.6 percent.

The overall trend is one of deceleration in the CPI, but at a much slower pace than has long been predicted by Federal Reserve officials.

This same trend is found in the less volatile measure “CPI less food and energy,” also known as “core CPI.” By this measure, May’s print was up year over year by 2.8 percent. That’s unchanged from April’s increase of 2.8 percent. Month-over-month, the core CPI rose by 0.1 percent. Core CPI has not gone down, month-over-month in 61 months.

Price inflation is not decelerating as quickly as central bankers had hoped. Although May numbers have not yet been published, the Fed’s preferred inflation measure, PCE inflation, printed at 2.5 percent in April, seven months after the FOMC cut the target policy rate, declaring that price inflation would soon fall to the Fed’s arbitrary two-percent goal. With May’s upward tick in CPI and core CPI numbers, May’s PCE reading may be an eighth month of uncooperative price inflation levels.

We are likely to see some downward pressure on price inflation in coming months, however, since there is increasing evidence that Americans have less disposable income to spend. Home listings are hitting multi-year highs, but far fewer buyers appear interested in purchasing them. Not surprisingly, home prices are beginning to fall, but we appear to be only at the very beginning of this trend.  We have yet to see any substantial declines in rents yet, but indications point to overall slowing in shelter prices in CPI measures. Other indicators of stagnating or falling prices can be found in the fact that delinquencies on credit cards, auto loans, and student loans are all at or above the highest levels reported since the Great Recession. This will all cut discretionary spending and put downward pressure on prices in some areas. 

It should be noted that even with the economy slowing, we are not seeing price inflation return to truly stable—that is, zero-level—price-inflation levels. Price inflation continues to move upward, and it cannot be said that price inflation has actually gone down in any meaningful sense. It has only decelerated.

Indeed, if we look at price inflation since the beginning of 2021, as the economy emerged from the covid lockdowns of 2020, the CPI has increased by 22 percent. Anyone who hasn’t experienced a wage increase of at least 22 percent over that period is now poorer. This is indeed the case for many Americans since average hourly earnings have increased by only 21 percent in that time. In other words, growth in average earnings has not been enough to keep up with the CPI.

Unfortunately, the average American is unlikely to experience much relief from this trend any time soon. As the economy worsens, the Fed will be pressured to cut the target interest rate so as to “stimulate” the economy. At this point in the business cycle, another interest rate cut is unlikely to do much to prevent continued economy stagnation. Rather, an embrace of even more dovish monetary policy will simply set the stage for building the next boom-bust cycle and prevent badly needed price deflation. 

Meanwhile, ordinary people are likely to see more stagnation in real wages, or worse, they may face rising unemployment.