By Canadian Press

US consumer prices slipped 0.1 per cent in May

Jun 14, 2017 | 6:45 AM

WASHINGTON — Consumer prices declined in May, reflecting a big drop in energy prices and smaller declines in a number of other areas. It was the second monthly decline in the past three months and underscores how inflation has been a no-show in the slow-growing U.S. economy.

Consumer prices edged down 0.1 per cent last month following a small 0.2 per cent increase in April, the Labor Department reported Wednesday. Prices had fallen 0.3 per cent in March. In addition to a drop in energy costs last month, the price of clothing, airline fares and medical care also declined.

Core inflation, which excludes energy and food, rose a slight 0.1 per cent in May.

The Federal Reserve was expected to boost a key interest rate later Wednesday. But some economists suggested that the unexpected slowdown in inflation in recent months may cause the Fed to slow the pace of further rate hikes.

“From out of nowhere we have now had three months of unusual weakness in underlying prices,” said Paul Ashworth, chief economist at Capital Economics.

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He said the inflation slowdown was occurring at the same time that the unemployment rate has fallen to a 16-year low.

“It won’t stop the Fed from hiking interest rates later today, but it increases the downside risks to our forecast that there will be a further two rate hikes in the second half of this year,” he said in a research note.

Over the past 12 months, consumer prices are up 1.9 per cent while core inflation has risen 1.7 per cent. The Federal Reserve seeks to manage interest rates to promote moderate annual gains in inflation of 2 per cent. The Fed’s preferred measure of inflation, tied to consumer spending, has been below 2 per cent for five years and in recent months slipped back a bit.

However, Fed officials have said they believe the recent slowdown in price gains reflected transitory factors and they expect inflation will resume moving toward 2 per cent as low unemployment helps to boost wages. Unemployment in May dipped to 4.3 per cent.

In May, food costs edged up a tiny 0.2 per cent while energy costs fell 2.7 per cent, led by a 6.2 per cent drop in the price of gasoline. Over the past 12 months, food costs are up just 0.9 per cent while energy prices have risen 5.4 per cent.

Clothing costs dropped 0.8 per cent in May while the cost of new cars and used cars both fell 0.2 per cent.

Medical services such as the cost of doctor’s visits dipped 0.1 per cent in May but have risen 2.5 per cent over the past 12 months.

Martin Crutsinger, The Associated Press