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Much like last Friday’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 increased a modest 0.1% on a seasonally adjusted basis last month.

A closer look reveals that the primary reasons for the pullback in prices were a decline in food costs and only a modest increase in energy prices. Specifically, the food index fell 0.3% last month, its largest decline since July, 2009. A pullback in nonalcoholic beverage, dairy, and cereal and bakery foods prices were the primary reason for the lower food costs. Meanwhile, the energy index was up nominally, rising 0.4% in May, held in check by a flat reading for gasoline prices. The index for all items, excluding the volatile energy and food components, rose a rather pedestrian 0.2%, after rising by 0.1% in both March and April. Overall, the 12-month change in the index for all items was 1.4% in May; a modest increase from the 1.1% reading for the year ended April, 2013.

The latest benign reading on inflation is also within the Federal Reserve’s target level. Thus, the central bank, if it deems necessary, should have no problem continuing its aggressive monetary actions in an effort to stimulate the economy. The Fed’s dual mandate calls for stable prices—which is the case right now—and maximum employment. The latter issue is still a major concern, which has prompted the aggressive continuance of quantitative easing. The Federal Reserve has been buying $85 billion a month of mortgage bonds and Treasuries in an effort to promote what Chairman Ben Bernanke described as a “sustained improvement in the labor market.”  If nothing else, the latest tame reading on inflation puts minimal 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 2015.

All in all, the latest reading on consumer prices shows that inflation is not a major issue right now for the central bank. This data, along with Friday’s tame report on producer prices, should give the Federal Reserve the leeway to continue its accommodative monetary policies if that is the course it wants to remain on. We are sure to learn more about the central bank’s philosophy after the conclusion of its two-day Federal Open Market Committee meeting tomorrow.

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