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Inflation Moderates; But Consumers Pay More on Rent and Dining Out

The headline number on inflation indicates a slight cooling of the pace of rising prices, at least in May.

But the data released Wednesday (June 12) by the U.S. Bureau of Labor Statistics shows that two key areas of spending — food consumed “away from home” at restaurants and the cost of rent — were still higher in the month.

Overall, the Consumer Price Index rose by 3.3% annually in May, moderating from the 3.3% pace seen in April. For May, prices were flat as consensus had projected a 0.1% increase.

Wall Street cheered the results and bid up stocks by about 0.8% at the start of trading Wednesday — anticipating that a rate cut from the Federal Reserve may be on the table again, but the Fed kept the interest rate steady.  There are still some indications that things may not ease up for the paycheck-to-paycheck economy because “disinflation” in some categories still is being offset by inflation in other categories.

The index tied to shelter was up 0.4% in May, and that 0.4% monthly increase has been logged through the past four months.

Food consumed at home (and thus bought at grocery stores and other merchants) was flat in terms of May pricing, after having declined by 0.2% in April. But going out to eat continues to be a bit weightier on the purse, as prices rose by 0.4% in May, the highest monthly acceleration seen since January.

Also, the CPI for apparel was down 0.3% in May after several months of price increases. Conversely, after a few months of declines, the used cars and trucks index rose 0.6% in May, on the heels of a 1.4% decrease in April.

The Trade-Offs and Trade-Downs

There may be a shift in the works here among the paycheck-to-paycheck segment of the economy, which represents 60% of consumers. Last month, Walmart Chief Financial Officer John David Rainey said rising restaurant prices spurred consumers to pivot and buy ingredients at the retailer to make their meals at home.

The PYMNTS Intelligence report “New Reality Check: The Paycheck-to-Paycheck Report: Why One-Third of High Earners Live Paycheck to Paycheck” found that two-thirds of consumers who find it challenging to meet their monthly expenses have been cutting back on what they deem “nice to have” items so that they can spend on essentials like food.

As late as last year, PYMNTS Intelligence estimated that paying for shelter, food and clothing took a 22% bite out of disposable income.

The percentage is likely higher now, given that wages have not kept pace with inflation in the paycheck-to-paycheck economy, which means that more dollars must be allocated to obtain the same level of goods and services.

The Federal Reserve announced earlier this week that consumers expect their household income to grow by 3.1%, but they expect inflation to be somewhat proportional one year from now at about 3.2%.