Much like yesterday’s companion report from the U.S. Department of Labor on producer (wholesale) prices, this morning's release of consumer prices for the month of May made for another tame reading on inflation. Specifically, the report showed that the Consumer Price Index fell 0.3% on a seasonally adjusted basis last month. 

A closer look reveals that the primary reason for the pullback in prices was a sharp decline in gasoline costs. Indeed, the gasoline index declined 6.8% in May, leading to a sharp decrease in energy costs for the consumer. Meanwhile, the food index was unchanged. The index for all items, excluding the volatile energy and food components, rose a rather pedestrian 0.2%, the third straight such increase. Overall, the 12-month change in the index for all items was 1.7% in May, a figure that has steadily declined since its September 2011 peak at 3.9%.

The latest tame reading on inflationary pressure may well prompt more calls for the Federal Reserve to implement another round of stimulus, especially with recent economic data on the U.S. economy a bit disconcerting. Just this morning, we learned that initial weekly unemployment claims rose by 6,000, to 386,000. A weak labor market—the nation added a paltry 69,000 jobs last month—threatens to stall the country’s economic progress. A few days ago, Federal Reserve Bank of Chicago President Charles Evans opined that another round of economic stimulus to produce job growth may be needed.

Will the Federal Reserve use the latest mild readings on inflation as an opportunity to take some monetary actions? While Federal Reserve Chairman Ben Bernanke remains non-committal on such a maneuver, things may change next week when the Federal Open Market Committee meets for two days beginning on Tuesday. If the situation in Europe continues to deteriorate and the economic data on these shores remains lackluster (investors should note that the latest report on industrial production is due out tomorrow), a third round of quantitative easing (i.e., bond buying) may be very much in play in the weeks ahead. If nothing else, the latest tame reading on inflation puts no pressure on the Federal Reserve to raise interest rates. The lead bank plans to keep rates at their current level for the foreseeable future, perhaps even until the early stages of 2014.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.