Why Inflation Was Surprisingly Low in May

Update—June 12, 2024: This article has been updated with more details about price changes.

Falling gas prices helped pushed inflation in May down to a number that likely comes as a welcome sight for many household budgets: zero.

The cost of living as measured by the Consumer Price Index was unchanged from April to May, the Bureau of Labor Statistics said Wednesday, the lowest monthly inflation rate since July 2022. That was down from a 0.3% monthly increase in April, and less than the 0.1% forecasters had expected, according to a survey of economists by Dow Jones Newswires and The Wall Street Journal. Over 12 months, prices rose 3.3%, down from 3.5% in April and less than the 3.4% median forecast.

Slower price increases could bring relief to household budgets in more ways than one by stabilizing the post-pandemic surge of inflation, which got as high as a 9.1% annual rate in June 2022.

Consumers Get Relief At The Pump, Grocery Store

Consumers got relief in several significant categories.

Gas prices were a large contributor to inflation's slide, falling 0.4% over the month, but are still up 3.6% in the 12 months ending May.

Motor vehicle insurance fell 0.1% over the month, the first decrease since October 2021 after years of punishing increases. Grocery prices were flat over the month after falling 0.2% in April, although eating out rose 0.4%, up from a 0.3% increase in April and the highest since January.

Falling prices for new cars and trucks, apparel, and airline tickets also helped keep core inflation tame. However, used car prices increased and stubbornly high price growth for housing—the largest component of the index—kept overall inflation from falling even more. 

Rents Keep Overall Inflation High

Shelter prices rose 0.4% over the month, the same as in April and March, and 5.4% over the year. Economists have expected housing inflation as measured by CPI to fall because of data from the private sector showing rent increases cooling off over the past several years, but the official measures have been slower than expected to show that trend.

The CPI report also bodes well for a separate government inflation report due later this month, Ali Jaffrey, an economist at CIBC, wrote in a commentary. That report will show the cost of living as measured by Personal Consumption Expenditures (PCE), which is more closely watched by Fed officials when setting interest rates. Notably, PCE puts less emphasis on housing than CPI, so that inflation reading could be more favorable.