- Inflation in the United States dropped to 4% in May, marking the eleventh consecutive month of slowing price increases.
- Prices for eggs, petrol, and furniture fell, contributing to the decrease in inflation.
- While the drop in headline inflation is largely due to declining petrol prices, underlying inflationary pressures remain high, particularly in sectors like housing and services.
Last month, US egg, fuel and furniture prices decreased, lowering inflation to half its yearly high.
In the 12 months to May, the Labour Department recorded 4% inflation.
Price rises have moderated for eleven months, falling from 4.9% in April.
The report comes as the US central bank debates how to fight inflation.
Officials have significantly increased borrowing costs in the world’s largest economy since last year to curb inflation, driving the Federal Reserve’s key interest rate from near zero in March 2022 to over 5%.
Analysts anticipate that the Federal Reserve will leave interest rates unchanged this month, reflecting the progress made to alleviate price pressures despite the impact of higher borrowing costs on borrowing and spending.
Since last year, the price of eggs has decreased by 13.8%, the largest decrease since 1951. The price of petrol has dropped nearly 20%.
Overall, at 4%, inflation is at its lowest level since March 2021, according to the Labour Department.
However, the update also revealed that prices in many sectors of the economy continue to rise steadily – and far quicker than the Fed-considered healthy rate of 2%.
Specifically, measures of housing expenses, such as rents, continue to rise significantly.
Additionally, there have been significant price increases for beer, women’s apparel, and services ranging from auto maintenance to school fees.
“Don’t be deceived by the steep drop in headline inflation, which is almost entirely attributable to a decline in petrol prices. These numbers indicate that underlying inflationary pressures remain stubbornly high, according to Fitch’s principal economist, Brian Coulton.
The Ukraine crisis raised oil and food prices, pushing US inflation to 9.1% in June 2022. Since November 1981, this was the highest rate since recorded.
Although the crisis has abated, some observers believe the Fed will need to take other steps to curb inflation.
Core inflation, which excludes volatile food and energy products and is considered a superior indicator of underlying pressures, increased 0.4% from April to May.
According to the Labour Department, this rate has remained unchanged for three consecutive months.
Alexandra Wilson-Elizondo of Goldman Sachs Asset Management stated that she does not anticipate the Fed to raise interest rates this week, but that the bank will likely revisit the issue at their July meeting.
“Today’s… number was a relief for the market as the data met expectations, confirmed the dis-inflationary trend, and reaffirmed market pricing for a Fed pause tomorrow,” she said. However, the rate of deflation continues to be incompatible with the Fed’s 2% inflation objective.
She noted that recent rate hikes in Australia and Canada were similarly prompted by persistent inflationary pressures.
At its meeting this week, the European Central Bank is widely anticipated to raise interest rates.
