CPI report: US inflation is returning to normal

US inflation is returning to normal

The era of sky-high US inflation is passing: According to information made public by the Bureau of Labour Statistics on Tuesday, consumer prices increased at their slowest annual rate since March 2021 in May.

The Consumer Price Index, a crucial inflation indicator that tracks increases in prices for a selection of goods and services, rose by 4% in the year that ended in May.

According to Refinitiv, it indicates a steep decline from April’s 4.9% and is just below experts’ forecasts for a 4.1% increase. Monthly price changes were up 0.1%. From April to May, economists anticipated a 0.2% rise in prices.

It’s been 11 months that inflation has decreased, which is a welcome relief from the agonising shock of consistently high inflation experienced over the previous two years. That CPI figure was 8.6% at this time last year, more than twice as high.

In an interview with CNN, Oxford Economics’ head US economist Nancy Vanden Houten remarked, “It’s another step in the right direction.”

The headline number was reduced thanks to a decline in energy costs and a delay in food price increases as well as the impact of base effects: Prior to peaking at 9.1% in June of last year, inflation was marching up and reaching new 41-year highs.

While 4% is a long cry from 9.1%, the Federal Reserve, which has been engaged in a historic campaign of monetary tightening since March 2022, still considers it to be far over its intended inflation objective. The Fed wants inflation to stabilise at 2% as shown by the core Personal Consumption Expenditures index.

The Federal Reserve is prepared to take a break from rising interest rates, according to Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. “Inflation is still much too high, but the trend is in the right direction,” he said. “They want to wait and see if their actions are sufficient to keep inflation moving in the right direction,” says one observer. “They’ve raised rates for 10 consecutive meetings in a row, and the 5 point increase is the most and fastest pace in decades.”

One of the final significant pieces of economic data to be considered before the Fed announces its rate decision on Wednesday is Tuesday’s CPI report, which is released as policymakers begin the first day of their monetary policymaking meeting.

In an effort to lower historically high levels of inflation, the Fed has raised its benchmark interest rate ten times in a row since March 2022. However, it is widely anticipated that the Fed will pause its rate hikes this time to consider the cumulative — and lagging — effects of monetary tightening as well as the effects from stricter lending standards within the banking sector.

According to CME FedWatch, markets are presently putting in a 95.3% chance that the Fed will halt on Wednesday.

Leave a Comment