A closely watched gauge of prices by the Federal Reserve suggests that inflation pressures in the U.S. economy are continuing to ease.
The Commerce Department report on Friday showed that consumer prices remained flat from April to May, the lowest performance in more than four years. Compared to the previous year, prices rose 2.6% last month, slightly lower than in April.
Excluding volatile food and energy prices, so-called core inflation rose 0.1% from April to May, the smallest increase since the spring of 2020, when the pandemic broke out and shut down the economy. Compared with the previous year, core prices rose 2.6% in May, the lowest increase in more than three years.
In fact, physical commodity prices fell 0.4% from April to May. For example, gasoline prices fell by 3.4%, furniture prices by 1%, and recreational and vehicle prices by 1.6%. On the other hand, service prices, which include items such as restaurant meals and airline ticket prices, rose by 0.2%.
Stocks rose on Wall Street on Friday, heading for their fourth weekly gain after the release. The S&P 500 rose 0.2%, on track for a fourth straight weekly gain and another all-time high. The Nasdaq Composite rose 0.2%, also on track to hit a record high.
The Dow Jones Industrial Average rose 93 points, or 0.2%, by 11:10 a.m. ET.
Close to 2%?
The latest numbers 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. The Fed’s rate cut, which most economists believe could begin in September, would eventually lower borrowing rates for consumers and businesses.
“If the trend we saw this month continues consistently for another two months, the Fed may finally have the confidence to cut interest rates in September,” Olu Sunola, head of US economic research at Fitch Ratings, wrote in a research note.
Federal Reserve Bank And raised the benchmark interest rate 11 times. In 2022 and 2023 as it seeks to curb the worst inflation in four decades. Inflation has slowed sharply from its peak in 2022. However, average prices remain well above what they were before the pandemic, a source of frustration for many Americans and a potential threat to President Joe Biden’s reelection bid.
During Thursday night’s presidential debate, Donald Trump attacked Biden’s record on inflationThe presumptive Republican nominee asserted that Biden inherited low inflation rates when he entered office in January 2021 but that prices “exploded under his watch.”
While inflation was actually quite low at the start of Biden’s presidency, that was largely because the nation was still recovering from the brutal Covid-induced recession, which slowed the economy. Once the economy began to come back to life unexpectedly quickly, causing severe shortages of goods and labor, inflation rose.
Price figures released on Friday added to signs that inflation pressures are continuing to ease, albeit at a slower pace than last year.
Price raising procedures
The Fed is inclined to favor the measure of inflation the government released on Friday — the Personal Consumption Expenditures Price Index — over the more well-known Consumer Price Index. The PCE index attempts to take into account changes in how people shop when inflation rates rise. It can monitor, for example, when consumers switch from expensive national brands to cheaper store brands.
Like the PCE index, the… Latest consumer price index Inflation fell for a second straight month in May, official data showed, raising hopes that a price rally that began earlier this year has ended.
Higher borrowing costs following the Federal Reserve’s interest rate hike, which sent its key interest rate to a 23-year high, were widely expected to push the country into recession. Instead, The economy has continued to growAnd Employers have continued to hire..
But recently, the economy’s momentum appears to be flagging, as rising interest rates appear to be weakening the ability of some consumers to continue spending freely. On Thursday, the government announced that The economy expanded at an annual rate of 1.4% From January to March, quarterly growth was the slowest since 2022. Consumer spending, the main driver of the economy, grew at a tepid annual rate of 1.5%.
Friday’s report also showed that consumer spending and incomes rebounded in May, encouraging signs for the economy. After adjusting for inflation, consumer spending – the main driver of the US economy – rose 0.3% last month after falling 0.1% in April.
After-tax income, also adjusted for inflation, rose 0.5%, the biggest gain since September 2020.