WASHINGTON – U.S. consumer prices were unexpectedly unchanged in May amid cheaper gasoline, but inflation likely remains too high for the Federal Reserve to start cutting interest rates before September against the backdrop of a persistently strong labor market.

The unchanged reading in the consumer price index reported by the Labor Department's Bureau of Labor Statistics on Wednesday followed a 0.3% increase in April.

The CPI has been trending lower since posting solid readings in February and March. Price pressures could continue moderating as major retailers, including Target, slash prices on goods ranging from food to diapers as they seek to lure inflation-weary consumers.

In the 12 months through May, the CPI advanced 3.3% after increasing 3.4% in April. Economists polled by Reuters had forecast the CPI edging up 0.1% and gaining 3.4% year-on-year.

Though the annual increase in consumer prices has slowed from a peak of 9.1% in June 2022, inflation continues to run above the U.S. central bank's 2% target.

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Job growth accelerates in May

Job growth accelerated in May and wages picked up, but the unemployment rate increased to 4%, the government reported last week. Later on Wednesday, Fed officials were expected to leave the central bank's benchmark overnight interest rate unchanged in the current 5.25%-5.50% range, where it has been since July.

The Fed has raised its policy rate by 525 basis points since March 2022.

Financial markets expect the Fed to start its easing cycle in September, though that conviction is waning. Some economists are leaning towards a rate cut in December, but others are not so sure that borrowing costs will be lowered this year.

Excluding the volatile food and energy components, the CPI climbed 0.2% in May after rising 0.3% in April.

In the 12 months through May, the core CPI increased 3.4%. That was the smallest year-on-year gain since April 2021 and followed a 3.6% advance in April.