Annual Inflation Cooled Slightly in May, But Monthly Unchanged

Annual inflation eased slightly for the second consecutive month in May, indicating a small reprieve after a rocky start to the year, although employees continue to deal with sticker shock and low financial well-being.

The Consumer Price Index (CPI) for all items rose 3.3% for the 12 months ending in May, before seasonal adjustment, the U.S. Bureau of Labor Statistics (BLS) reported June 12. That’s down slightly from the 3.4% year-over-year increase in April, which followed three months of hot inflation data.

On a monthly basis, however, the CPI was unchanged, after rising 0.3% in April.

Core inflation—which excludes the more volatile food and energy prices—rose 3.4% year-over-year, a dip from the 3.6% rise in April.

Justin Ladner, senior labor economist at SHRM, said that although the report provides mild evidence that inflation is easing or stabilizing, the finding will “likely do little to change employers’ plans or influence policy decisions, like Fed interest rate cuts, in the near term.”

“Instead, employers and policymakers will be hoping that data in the coming months will provide clear evidence of cooling inflation and a loosening labor market,” he said.

Indeed, employers have received mixed signals from recent reports on economic conditions. For example, Employer Cost Index (ECI) values for Q1 2024 came in above expectations, and several recent BLS jobs reports—including the most recent one for May 2024—continue to suggest a very tight labor market, Ladner explained.

“These reports have stoked fears of persistent inflation, both overall and for employment costs specifically,” he said. Having said that, other evidence, such as the April CPI report, the April BLS jobs report, and Atlanta Fed wage tracker, suggest mildly cooling inflation, a slightly loosening labor market and falling wage growth, respectively. 

Adding complexity to the mixed reports is the fact that data finds that employees are still feeling wary about their financial situation—and even more concerned over inflation than they were a year ago.

Bank of America’s annual Workplace Benefits Report, which surveyed nearly 1,000 employees and more than 800 employers, found that employees’ optimism about financial well-being is trending up after hitting an all-time low last year, but bad news remains about workers’ financial state. Fewer than half of U.S. workers (47%) feel financially well, up from 42% at this time last year. That report also found that employees are even more concerned about inflation this year than they were last year: 76% of workers say the cost of living is outpacing growth in their salary or wages, a big jump from the 67% who said so in June 2023. And 66% of workers said they feel stressed about their finances.

Real Earnings

Meanwhile, real average hourly earnings increased 0.8 percent, seasonally adjusted, from May 2023 to May 2024, the BLS reported separately Wednesday. The change in real average hourly earnings combined with a decrease of 0.3 percent in the average workweek resulted in a 0.5-percent increase in real average weekly earnings over this period.