The Federal Reserve has indicated that inflation pressures in the US economy are continuing to ease, according to Friday’s Commerce Department report.
Consumer prices remained flat from April to May, the mildest performance in over four years. Measured from a year earlier, prices rose 2.6% last month, slightly less than in April.
Core inflation, excluding volatile food and energy prices, rose 0.1% from April to May, the smallest increase since the spring of 2020.
Compared with a year earlier, core prices were up 2.6% in May, the lowest increase in more than three years.
Prices for physical goods actually fell 0.4% from April to May, led by declines in gasoline, furniture, and recreational goods and vehicles.
In contrast, prices for services, including restaurant meals and airline fares, ticked up 0.2%.
The latest figures are likely to be welcomed by Fed policymakers, who have said they need to feel confident that inflation is slowing sustainably toward their 2% target before they start cutting interest rates.
Rate cuts by the Fed, which most economists think could start in September, would lead to lower borrowing rates for consumers and businesses.
Head of US economic research at Fitch Ratings, Olu Sonola, wrote in a research note,
“If the trend we saw this month continues consistently for another two months, the Fed may finally have the confidence necessary for a rate cut in September.”
The Fed raised its benchmark rate 11 times in 2022 and 2023 to curb the worst streak of inflation in four decades.
Inflation has cooled substantially from its peak in 2022, but average prices remain far above pre-pandemic levels, a source of frustration for many Americans and a potential threat to President Joe Biden’s re-election bid.
During Thursday night’s presidential debate, Donald Trump attacked Biden’s record on inflation, asserting that prices “blew up under his leadership.”
However, inflation was ultra-low at the start of the Biden presidency due to the nation’s recovery from the Covid recession.
Friday’s price figures add to signs that inflation pressures are continuing to ease, though more slowly than last year.
The Fed tends to favor the personal consumption expenditures price index (PCE) over the consumer price index (CPI).
The PCE index accounts for changes in how people shop when inflation jumps, capturing consumers’ switches to cheaper alternatives.
Boluwatife Enome
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