An inflation gauge tracked by the Federal Reserve falls to its lowest point in 2 years

WASHINGTON (AP) — An inflation index that is closely monitored by the Federal Reserve tumbled last month to its lowest level since April 2021, pulled down by lower gas prices and slower-rising food costs.

At the same time, consumers barely increased their spending last month, boosting it just 0.1%, after a solid 0.6% gain in April.

The inflation index showed that prices rose 3.8% in May from 12 months earlier, down sharply from a 4.4% year-over-year surge in April. And from April to May, prices ticked up just 0.1%.

Still, last month’s progress in easing overall inflation was tempered by an elevated reading of “core” prices, a category that excludes volatile food and energy costs. That underscored the Fed’s belief that it will need to keep raising interest rates to conquer high inflation.

Core prices rose 4.6% in May from a year earlier, down slightly from the annual increase of 4.7% in April. It was the fifth straight month that the core figure was either 4.6% or 4.7% — a sign that the Fed’s streak of 10 rate hikes over the past 15 months hasn’t subdued all categories of prices. From April to May, core prices increased 0.3%, a pace that, if it lasts, would keep inflation well above the Fed’s 2% target.

Friday’s government report arrives two days after Chair Jerome Powell said the Fed was prepared to keep interest rates at their peak for an extended period to tame the still-rising prices that have shrunk Americans’ inflation-adjusted paychecks and disrupted businesses. The Fed’s policymakers, as a group, envision two additional rate hikes this year.