Key takeaways
- Both headline and core inflation cooled from the previous month, giving more leeway for the Federal Reserve to cut interest rates this year.
- The prices that fell the most were gasoline, new vehicles, auto insurance and airfare.
- Some prices remain troublingly elevated, however, including the costs of medical care and housing.
Contributors
Megan Werner
Digital Content Writer & Editor, J.P. Morgan Wealth Management
The Consumer Price Index (CPI) remained unchanged in May on a seasonally-adjusted basis, following a 0.3% increase in April, as reported by the U.S. Bureau of Labor Statistics.1 The core reading, which excludes food and energy, came in at 3.4% year over year, down from last month’s 3.6%. The softness seen in May’s CPI report follows a string of hotter-than-anticipated prints and seems to indicate the disinflation process is still intact – a welcome sign for the Federal Reserve.
Inflation drivers in May 2024
May’s downshift in consumer prices was particularly helped by marked cooling in the services component of the index. That said, stubborn shelter prices continued on an upward trend, rising by 0.4% for the fourth consecutive month. This persistent increase in shelter costs underscores ongoing pressure in the housing market.
Rent and owners’ rent equivalent both rose by 0.4% month-over-month (MoM) in May.2 Since these categories make up more than a third of the index's relative importance weighting, moderate increases in shelter will keep the overall index elevated, even with drops in the volatile food and energy indexes. But as economists at the Bureau of Labor Statistics (BLS) note, shelter is both difficult to measure and a lagging indicator.3 While economists have been expecting housing inflation to cool, it has been surprisingly stubborn, even as the prices of other goods have fallen.
Under the hood, some other components of the index rose faster than anticipated. Notably, medical care prices rose by 0.5% in May after a 0.4% increase in April, with prescription drugs rising by 2.1%. Hospital services also rose by a noteworthy 0.5%. Meanwhile, the prices of used cars and trucks, which had been cooling at the end of 2023, saw increases. Food prices, an ongoing pain point for consumers, increased modestly at 0.1% MoM. Although pandemic-era price increases due to shortages appear to be in the rearview mirror, consumers have continued to show willingness to spend.
CPI headline inflation rate and the core rate: What fell in May
Energy prices fell by 2% in May, primarily driven by a 3.6% decrease in the gasoline index. This decline in energy costs provided some relief to not only the headline CPI reading but also to consumers. Despite bouts of geopolitically-fueled volatility, falling oil and gas prices have played a part in easing overall inflation throughout the last year.
Core CPI (i.e., all items ex food and energy prices) not only fell year-over-year but also softened on a MoM basis, coming in at 0.2% in May – down from a 0.3% increase in April. The core measure is particularly important to policymakers as it excludes more volatile components giving them a “better look” at the data. To boot, this month’s print seems to signal that the uptick in inflation at the beginning of the year was a speed bump, not a derailment of disinflationary trends.
“While inflationary pressures are still in play, today’s data fit with our core view that we should see continued disinflation throughout the remainder of the year,” said Global Investment Strategist, Sarah Stillpass, adding that, “If the trend continues, we would expect the Fed to deliver one rate cut by year end, likely in December.”
Several indexes that make up the core inflation reading also decreased in May. One such index was airline fares, which fell by 3.6%, following a 0.8% decrease in April. “We saw exceptional weakness in a variety of transportation sector components, like airfare and auto insurance,” Stillpass said, noting that, “If we look at the data and strip out the transportation sector, prices are a bit firmer, but nonetheless still decreasing.” The new vehicles index dropped by 0.5%, while the communication index – which measures telephone and internet services – decreased by 0.3%. Additionally, the recreation index declined by 0.2%. Indexes for apparel, household furnishings and operations, motor vehicle insurance and personal care all experienced declines.
Elevated inflation persists in some corners of the economy
While inflation remains elevated, May’s CPI report was certainly a welcome one ahead of the Fed’s May meeting. Our strategists expect the disinflation trend to continue, thereby allowing the Fed to deliver a rate cut by the end of this year.
References
Bureau of Labor Statistics (BLS), “Consumer Price Index Summary.” (June 2024)
BLS, “Table 1. Consumer Price Index for All Urban Consumers (CPI-U): U.S. city average, by expenditure category.” (June 2024)
BLS, “Measuring Price Change in the CPI: Rent and Rental Equivalence.” (May 2023)
Connect with a Wealth Advisor
Our Wealth Advisors begin by getting to know you personally. To get started, tell us about your needs and we’ll reach out to you.
IMPORTANT INFORMATION
This material is for informational purposes only, and may inform you of certain products and services offered by J.P. Morgan’s wealth management businesses, part of JPMorgan Chase & Co. (“JPM”). Products and services described, as well as associated fees, charges and interest rates, are subject to change in accordance with the applicable account agreements and may differ among geographic locations. Not all products and services are offered at all locations. If you are a person with a disability and need additional support accessing this material, please contact your J.P. Morgan team or email us at accessibility.support@jpmorgan.com for assistance. Please read all Important Information.
GENERAL RISKS & CONSIDERATIONS. Any views, strategies or products discussed in this material may not be appropriate for all individuals and are subject to risks. Investors may get back less than they invested, and past performance is not a reliable indicator of future results. Asset allocation/diversification does not guarantee a profit or protect against loss. Nothing in this material should be relied upon in isolation for the purpose of making an investment decision. You are urged to consider carefully whether the services, products, asset classes (e.g. equities, fixed income, alternative investments, commodities, etc.) or strategies discussed are suitable to your needs. You must also consider the objectives, risks, charges, and expenses associated with an investment service, product or strategy prior to making an investment decision. For this and more complete information, including discussion of your goals/situation, contact your J.P. Morgan team.
NON-RELIANCE. Certain information contained in this material is believed to be reliable; however, JPM does not represent or warrant its accuracy, reliability or completeness, or accept any liability for any loss or damage (whether direct or indirect) arising out of the use of all or any part of this material. No representation or warranty should be made with regard to any computations, graphs, tables, diagrams or commentary in this material, which are provided for illustration/reference purposes only. The views, opinions, estimates and strategies expressed in this material constitute our judgment based on current market conditions and are subject to change without notice. JPM assumes no duty to update any information in this material in the event that such information changes. Views, opinions, estimates and strategies expressed herein may differ from those expressed by other areas of JPM, views expressed for other purposes or in other contexts, and this material should not be regarded as a research report. Any projected results and risks are based solely on hypothetical examples cited, and actual results and risks will vary depending on specific circumstances. Forward-looking statements should not be considered as guarantees or predictions of future events.
Nothing in this document shall be construed as giving rise to any duty of care owed to, or advisory relationship with, you or any third party. Nothing in this document shall be regarded as an offer, solicitation, recommendation or advice (whether financial, accounting, legal, tax or other) given by J.P. Morgan and/or its officers or employees, irrespective of whether or not such communication was given at your request. J.P. Morgan and its affiliates and employees do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transactions.
LEGAL ENTITY, BRAND & REGULATORY INFORMATION
J.P. Morgan Wealth Management is a business of JPMorgan Chase & Co., which offers investment products and services through J.P. Morgan Securities LLC (JPMS), a registered broker-dealer and investment adviser, member FINRA and SIPC. Insurance products are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. Certain custody and other services are provided by JPMorgan Chase Bank, N.A. (JPMCB). JPMS, CIA and JPMCB are affiliated companies under the common control of JPMorgan Chase & Co. Products not available in all states.
Bank deposit accounts and related services, such as checking, savings and bank lending, are offered by JPMorgan Chase Bank, N.A. Member FDIC.
This document may provide information about the brokerage and investment advisory services provided by J.P. Morgan Securities LLC (“JPMS”). The agreements entered into with JPMS, and corresponding disclosures provided with respect to the different products and services provided by JPMS (including our Form ADV disclosure brochure, if and when applicable), contain important information about the capacity in which we will be acting. You should read them all carefully. We encourage clients to speak to their JPMS representative regarding the nature of the products and services and to ask any questions they may have about the difference between brokerage and investment advisory services, including the obligation to disclose conflicts of interests and to act in the best interests of our clients.
J.P. Morgan may hold a position for itself or our other clients which may not be consistent with the information, opinions, estimates, investment strategies or views expressed in this document. JPMorgan Chase & Co. or its affiliates may hold a position or act as market maker in the financial instruments of any issuer discussed herein or act as an underwriter, placement agent, advisor or lender to such issuer.
Check the background of our firm and investment professionals on FINRA's BrokerCheck
To learn more about J. P. Morgan’s investment business, including our accounts, products and services, as well as our relationship with you, please review our J.P. Morgan Securities LLC Form CRS and Guide to Investment Services and Brokerage Products.
This website is for informational purposes only, and not an offer, recommendation or solicitation of any product, strategy service or transaction. Any views, strategies or products discussed on this site may not be appropriate or suitable for all individuals and are subject to risks. Prior to making any investment or financial decisions, an investor should seek individualized advice from a personal financial, legal, tax and other professional advisors that take into account all of the particular facts and circumstances of an investor's own situation.
This website provides information about the brokerage and investment advisory services provided by J.P. Morgan Securities LLC ("JPMS"). When JPMS acts as a broker-dealer, a client's relationship with us and our duties to the client will be different in some important ways than a client's relationship with us and our duties to the client when we are acting as an investment advisor. A client should carefully read the agreements and disclosures received (including our Form ADV disclosure brochure, if and when applicable) in connection with our provision of services for important information about the capacity in which we will be acting.
INVESTMENT AND INSURANCE PRODUCTS ARE: • NOT FDIC INSURED • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY • NOT A DEPOSIT OR OTHER OBLIGATION OF, OR GUARANTEED BY, JPMORGAN CHASE BANK, N.A. OR ANY OF ITS AFFILIATES • SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED
J.P. Morgan Wealth Management is a business of JPMorgan Chase & Co., which offers investment products and services through J.P. Morgan Securities LLC (JPMS), a registered broker-dealer and investment adviser, member FINRA and SIPC Insurance products are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. Certain custody and other services are provided by JPMorgan Chase Bank, N.A. (JPMCB). JPMS, CIA and JPMCB are affiliated companies under the common control of JPMorgan Chase & Co. Products not available in all states.
Please read additional Important Information in conjunction with these pages.
You're now leaving J.P. Morgan
J.P. Morgan’s website and/or mobile terms, privacy and security policies don’t apply to the site or app you're about to visit. Please review its terms, privacy and security policies to see how they apply to you. J.P. Morgan isn’t responsible for (and doesn’t provide) any products, services or content at this third-party site or app, except for products and services that explicitly carry the J.P. Morgan name.