Core inflation and rising prices
These so-called “core prices” are expected to have risen by 0.3 percent from April to May, the identical amount as within the previous month, in line with a survey of economists by data provider FactSet. Compared to the previous 12 months, core inflation is anticipated to have fallen from 3.6 percent to three.5 percent.
Even as overall inflation eases, essential goods like food, rent and health care are way more expensive than they were three years ago – a lingering source of popular discontent and a political threat to President Joe Biden’s re-election. Most other indicators suggest the economy is healthy: Unemployment stays low, hiring is powerful and consumers are traveling, eating out and spending money on entertainment. But polls show that cumulative price increases are weighing on Biden’s popularity.
Monitoring inflation within the US
The Federal Reserve closely monitors inflation reports every month for signs that it’s succeeding in fighting rising prices. A 0.3 percent increase in core consumer prices is simply too high over the long run to be consistent with the central bank’s 2 percent annual inflation goal and could possibly be seen as a disappointment. Still, Federal Reserve officials prefer a separate inflation measure that is usually barely lower than Wednesday’s consumer price index.
Following their latest two-day meeting on Wednesday – just hours after the discharge of inflation data for May – monetary authorities are expected to depart the important thing rate of interest unchanged at around 5.3 percent, the best level in 23 years.
Lower gas prices are more likely to have slowed overall inflation to only 0.1 percent from April to May, in line with FactSet. This is lower than the 0.3 percent within the previous month and the bottom level since October. Compared to a 12 months ago, consumer prices are more likely to have risen by 3.4 percent in May, the identical as in April.
Persistently high inflation presents a difficult challenge for the Federal Reserve, which raises rates of interest – or keeps them high – to curb borrowing and spending, cool the economy and slow the pace of price increases. The Federal Reserve has left its benchmark rate of interest unchanged for nearly a 12 months after raising it rapidly in 2022 and 2023. Those higher rates have, in turn, led to dearer mortgages, auto loans, bank cards and other types of borrowing by consumers and businesses.
The longer the Fed keeps borrowing costs high, the greater the chance that it’s going to weaken the economy an excessive amount of and potentially trigger a recession. But if it cuts rates too soon, it risks reigniting inflation. Most policymakers have said their rate of interest policy is slowing growth and may contain inflation over time.
Is the USA experiencing a soft landing?
Inflation had been falling steadily within the second half of last 12 months, raising hopes that the Federal Reserve could achieve a “soft landing” by which it will manage to regulate inflation by raising rates of interest without triggering a recession. Such an final result is difficult and rare.
