(Reuters) – U.S. consumer price inflation slowed more than expected in May, official data showed on Tuesday, fueling expectations of a Federal Reserve (Fed) pause in raising rates to the outcome of its monetary policy meeting on Wednesday. The Labor Department’s Consumer Price Index (CPI) rose 0.1% in May month-on-month, from 0.4% in April, and 4% year on year, from 4.9% in april. Economists polled by Reuters on average expected a slowdown to 0.2% month-on-month and 4.1% year-on-year. If we exclude volatile items such as food and energy, core inflation (“core CPI”) came out up 0.4% in May over one month, while over one year its growth amounts to 5.3%, in line with the estimates of economists polled by Reuters. The U.S. economy is showing signs of slowing, and economists believe the Fed may hold off on rate hikes to assess the transmission of its monetary policy to the economy.”The CPI inflation data clearly showed that the Fed must now take a summer break from its monetary policy,” observes Naeem Aslam, chief investment officer at Zaye Capital Markets.

Core inflation, however, is proving resilient and well beyond the Fed’s 2% target.

High rents continue to support inflationary momentum, as do prices for used cars and trucks, which are lagging behind the increases that took place this winter and spring.

“It probably would have taken a significant surprise on inflation dynamics to convince the Fed to hike in June,” said Seema Shah, chief strategist at Principal Asset Management. “However, with underlying inflation still on the rise in May and solid employment data, the Fed’s July meeting is not a foregone conclusion.”

Underlying inflation, however, is expected to ease after May, driven by moderating rents and lower prices for used cars and trucks. Treasuries yields were on the rise again after falling sharply on the publication of the inflation statistics.

(Lucia Mutikani, Diana Mandiá and Corentin Chapron for the , edited by Blandine Hénault)

Copyright © 2023 Thomson Reuters