LEILA FADEL, HOST:
From the supermarket to the used car lot, Americans have been dealing with two years of sticker shock. And that continued in May, although inflation was somewhat cooler than the month before. Prices are up 4% over the last 12 months. That's the smallest annual increase since March of 2021. The latest cost of living report from the Labor Department comes just as Federal Reserve officials are huddling to decide what to do with interest rates. NPR's Scott Horsley joins us now with details. Good morning, Scott.
SCOTT HORSLEY, BYLINE: Good morning.
FADEL: OK, so what's getting more expensive? And, Scott, please tell me something's getting cheaper.
HORSLEY: Something is, yeah. Rising rents and used car prices were some of the biggest drivers of inflation last month, but that was partially offset by falling prices elsewhere. Gasoline prices were down, even as demand for gas has been on the rise. And eggs, which were the poster child for soaring supermarket inflation, have come back to earth now that laying flocks are recovering from that severe outbreak of avian flu. In fact, egg prices dropped nearly 14% last month. That's the biggest decrease since 1951. White House economist Ernie Tedeschi says goods prices overall aren't climbing as fast as they had been now that pandemic knots in the supply chain have generally come untangled.
ERNIE TEDESCHI: We try not to pay too much attention to month-and-month numbers because they are noisy. But I think if you're looking at trends, supply chains have normalized, and that seems to have translated into goods inflation that has trended down.
HORSLEY: The problem is just as one pain in the pocketbook goes away, another comes along. So while the price of some things have leveled off or even fallen, other prices, especially for services like restaurant meals and car repairs, are still climbing. And that's making it hard to get overall inflation back down to 2%, where the Fed wants it to be. So-called core inflation, which strips out food and energy prices that bounce around a lot, remains stubbornly high. It was 5.3% for the 12 months ending in May.
FADEL: So what's the Fed doing in response?
HORSLEY: Well, it's been raising interest rates pretty aggressively. The central bank has boosted its benchmark rate at the last 10 straight meetings. Now, that makes it more expensive to borrow money for a business or buy a house or carry a balance on your credit card. At this week's meeting, though, Fed watchers think the central bank is going to take a break and leave rates unchanged, giving policymakers more time to assess how the economy's reacting to the higher borrowing cost. Andrew Patterson, who's a senior economist at Vanguard, says don't get too comfortable though. He thinks the Fed could start resuming rate hikes as early as July.
ANDREW PATTERSON: We believe the Fed has more work to do. I think they have an opportunity here for a hawkish pause or skip - whatever you want to call it - where they're saying, hey, we're eventually going to get to a higher terminal rate.
HORSLEY: Back in March, Fed policymakers, on average, thought rates would end up this year about where we are right now. But since then, we've had some strong economic data. So the Fed might feel like it needs to tap the brakes a little harder, even if it doesn't do so this week.
FADEL: We've been living with high inflation for a while now. How's this affecting the way people think about rising prices?
HORSLEY: You know, the Federal Reserve Bank of New York surveys people every month to see what they think inflation will do in the coming year and three years and five years. In the most recent survey, people guessed that inflation a year from now would be lower. In fact, their guess was the lowest since the spring of 2021. But they raise their estimate of where inflation would be three and five years out. So one way to think about that is people seem to be not as acutely worried about inflation as they were a few months ago, but they also think it's a stubborn problem that could be with us for a while.
FADEL: NPR's Scott Horsley, thank you.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.
