A newly released report showed consumer sentiment this month remained at the same level it was a month earlier but it’s still high, while separate reports indicated inflation remains rather tame.

Preliminary May results of the University of Michigan Survey of Consumers did show a slight upturn when the results are compared to a year ago. Separate measures of consumers’ feelings about current economic conditions as well as their expectations performed better year-over-year than when May is compared to April.

What is likely to capture attention, according to Surveys of Consumers Chief Economist Richard Curtin, is the small month-over-month uptick in near-term inflation expectations, the downward slippage in income expectations, and the expected stabilization of the national unemployment rate at decade lows.

“The data will thus provide some additional points for both sides in the debate about the timing and number of future interest rate hikes,” he said. “Eight-in-ten consumers anticipated interest rate hikes during the year ahead, and fewer consumers anticipated further declines in the unemployment rate, although all of the shift was toward the expectation of a stable unemployment rate rather than an increased rate.”

Curtin said that, overall, the data are consistent with a growth rate of 2.7% in real personal consumption from the second half of 2018 to first half of 2019.

Analysts Say Threat of Inflation to the Economy Is Low

This followed a pair of reports earlier in the week that showed inflation is taking either a step back or remaining stable, depending on how you look at it, at both the retail and wholesale levels on a month-over-month basis.

The Labor Department reported the Consumer Price Index (CPI) increased less than expected in April, up 0.2% from the month before, after falling 0.2% in March. Measures for gasoline and shelter were the largest factors in the increase while food increased as well.

Over the past year, the CPI increased 2.5%, marking its biggest gain since February 2017, after rising 2.4% March, and scoring its second-highest rate since 2012.

Excluding volatile food and energy, the core CPI edged up 0.1% after two straight monthly increases of 0.2%, but still showed the weakest monthly gain since November. The core CPI rose 2.1% year-on-year in April, the same as March's increase.

The yearly figures compare with the Federal Reserve’s preferred method of measuring inflation, Personal Consumption Expenditures (PCE), excluding food and energy, which moved up 1.9% over the past year, just shy of the central bank’s target of 2% for what it considers good economic growth.

Consumer prices remain above 2% and have for some time, noted Stifel Chief Economist Lindsey Piegza, and that momentum, however, appears to be waning, undermining expectations for a further rise in the Federal Reserve’s preferred inflation gauge, the PCE.

“At this point, the current reading on prices continues to support the hawks and a potential June [interest] rate hike, but the underlying and uneven composition of price pressure may embolden the doves to hold their position, questioning the longer-term directional momentum of domestic inflation,” she said. 

Meantime, a separate report released by the Labor Department showed prices at the wholesale level rose less than expected during April.

The 0.1% rise in the Producer Price Index (PPI) from the month before is the smallest hike since December and followed a 0.3% increase in March.

Core prices, which exclude volatile food and energy prices rose 0.2% in April.

Over the past year core prices have risen 2.3% while the overall PPI has posted a 2.6% gain, down from a 3% annual rate in March.

Analysts with Wells Fargo Securities said “While the trend in inflation remains upward, inflation is far from becoming unhinged.”

“At this point, there is little fear of rapidly rising prices or out of control inflation. In fact, there remains ample discussion at the Fed over the directional momentum of inflation,” said Stifel’s Piegza. “Prices have in the past pushed up to 2% only to fall back down below the Fed’s longer-run objective a few months later.”