June 13, 2023: According to the latest data from the Bureau of Labor Statistics, consumer prices in the US rose slower in May, and US inflation slows down. The Consumer Price Index (CPI), which measures changes in prices for goods and services, increased by 4% over the past year, marking a decrease from April’s 4.9% and falling slightly below economists’ expectations. Every month, prices saw a marginal increase of 0.1%. This marks the 11th consecutive month of inflation slowing down, offering a welcome break from the persistently high inflation experienced in recent years.
The decline in energy prices and a slowdown in food price hikes contributed to the decrease in overall inflation. Additionally, the significant drop in egg prices, which had surged due to avian flu last year, further contributed to the decline. However, it’s important to note that while inflation has decreased, it remains well above the Federal Reserve’s desired target of 2%.
The Federal Reserve has been actively tightening monetary policy to combat high inflation, with ten consecutive benchmark interest rate hikes since March 2022. The current slowdown in inflation may prompt the Fed to pause it’s tightening campaign and assess the impact of its previous actions.
The CPI report is one of the last pieces of economic data the Fed officials will consider before announcing their rate decision. Market expectations are leaning towards a pause in the rate hikes this time.
The drivers of inflation have been primarily attributed to price increases in categories such as shelter and used cars, along with services excluding rent. However, the cost of rent and new leases is expected to slow down in the coming months, which could lead to a decrease in overall inflation.
Similarly, wholesale used car prices have shown signs of cooling off, which may result in more affordable prices for consumers.
The report also revealed a decline in services excluding housing, a concern for the Fed. While labor costs in services businesses have the potential to keep inflation elevated, the recent fall in this category suggests progress in controlling inflation.
Despite these positive developments, economists warn of potential risks and challenges ahead. Some predict a mild recession later this year as inflation continues to impact business activity and increase household costs, potentially leading to a slowdown in consumption.
As the Federal Reserve deliberates on its rate decision, it will consider the latest CPI report and other economic factors. Balancing inflation control and sustaining economic growth will remain key priorities for the central bank.
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