The CPI numbers show "there are limited inflation pressures in the US economy right now", said Leslie Preston, senior economist at Toronto-Dominion Bank. Food prices rebounded 0.3 per cent in May after dipping 0.1 per cent in the prior month.
Stocks declined on the report, which follows other signs of slowing economic growth at home and overseas - as well as uncertainty over the impact of President Donald Trump's tariffs on Chinese goods - that have bolstered expectations for Fed rate cuts this year.
With the dollar being on the backfoot since the latest eruption in trade tensions, the United States currency is looking slightly oversold and could be prone to an upside correction if the data come in at or above estimates. Goods prices slipped 0.2 percent last month after gaining 0.3 percent in April.
When the volatile food and fuel categories are excluded, "core" inflation also rose 0.1 percent for the fourth month in a row, falling just shy of a consensus forecast.
The Labor Department said Wednesday that the consumer price index rose 1.8% during the past year. In the 12 months through May, the PPI climbed 1.8 percent, slowing from April's 2.2 percent advance.
Healthcare costs increased 0.3 per cent, matching April's rise.
Traders in futures markets are giving odds of about 20% that the Fed will cut rates at its meeting next week - and a 70% chance of at least one cut by the central bank's July 30-31 meeting, WSJ reported.
The U.S. dollar dropped sharply against a basket of currencies after the release of the data while U.S. Treasury yields fell.
When other countries' currencies fall relative to the USA dollar, their goods become cheaper in the US market while dollars go further when Americans travel, though US goods become more expensive overseas.
The core consumer price index, which removes energy and food costs, rose 2% from a year earlier, according to a Labor Department report Wednesday.
Compared to May of previous year, the core CPI is 2% higher, slowing slightly from the 2.1% pace of a month earlier.
The report showed used-car prices dropped 1.4% from the prior month while new auto prices increased 0.1%; The index for motor insurance dropped the most since 2007.Shelter costs rose 0.2%, as owners-equivalent rent, one of the categories that tracks rental prices, increased 0.3%. Last month, wholesale energy prices fell 1.0% after rising 1.8% in the prior month. Services prices rose 0.3% after gaining 0.1% in April. But the prices for prescription medication fell 0.2%. The core PCE price index has been running below the Fed's 2% target this year. Core goods prices were unchanged for a second straight month. Food consumed at home increased 0.3 per cent last month.
He argued that China, with closer political control of its central bank, could devalue its currency or use other tools to offset the tariffs Trump has imposed on Chinese imports.