U.S. inflation ebbs in May as goods prices fall

A closely watched inflation report on Friday showed that US prices were unchanged in May from the prior month, as a modest increase in the cost of services was offset by the biggest drop in goods prices in six months. The report from the Commerce Department, known as the personal consumption expenditures, or PCE, price index, is the preferred inflation gauge of the Federal Reserve. The flat monthly reading raised investors hopes that the central bank might start cutting interest rates as soon as September. Despite Fed officials having already indicated that December is more likely, the report also showed the annual inflation rate ticking down to 2.6%, which is still above the Feds 2% target. And the core PCE, which excludes volatile food and energy prices, recorded its smallest gain since November. That helped put the annual core inflation rate at 2.6%, its smallest increase since March 2021. Consumer spending also rose marginally last month, raising optimism that the Fed could engineer a soft landing for the economy in which inflation falls without triggering a recession or a sharp rise in unemployment.