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US Inflation Moderates, Easing Concerns of Sustained Price Surges

15/06/2023 à 14:11:48

- history8 months

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US inflation showed signs of moderation in May, with consumer prices rising at the slowest pace since March 2021, providing relief from persistently high inflation levels experienced over the past two years.

The latest data released by the Bureau of Labor Statistics indicates a notable slowdown in US inflation, bringing relief to consumers and economists alike. The Consumer Price Index (CPI), a key indicator of inflation, rose by 4% for the year ending in May, marking the slowest annual pace since March 2021. While this figure is lower than economists' expectations, it still remains above the Federal Reserve's desired inflation target of 2%. The moderation in inflation comes as a welcome reprieve from persistently high levels experienced over the past two years.

May's CPI report reveals the 11th consecutive month of inflation deceleration, highlighting a positive trajectory. The slowdown can be attributed to multiple factors, including a drop in energy prices, a decrease in food price hikes, and the impact of base effects. In comparison to the previous year, when inflation peaked at 8.6%, the current figure of 4% signifies a substantial improvement.

Economists and financial experts view the moderation in inflation as a step in the right direction. Nancy Vanden Houten, lead US economist at Oxford Economics, emphasizes the positive trend but acknowledges that inflation still remains elevated. The Federal Reserve, which has been implementing a monetary tightening campaign since March 2022, aims to achieve stable inflation at the core Personal Consumption Expenditures index of 2%. Market expectations suggest that the Fed will pause its interest rate hikes in light of the cumulative effects of monetary tightening and stricter lending standards in the banking industry.

Food inflation witnessed a decline on an annual basis, although there was a slight increase in May for groceries and food away from home. Notably, egg prices experienced a significant drop of 13.8% from April, the largest monthly decline in this category since 1951. Furthermore, the core CPI, which excludes the volatile components of food and energy, saw a 5.3% increase on an annual basis. However, this figure was slightly lower than April's reading. Economists expect easing in inflation related to shelter and used car prices in the near future.

The services sector, excluding housing, displayed a monthly decline of 0.2%, contributing to a 4.2% decrease on an annual level. This decline is encouraging for the Federal Reserve, as inflation within this category has been a source of concern. The services sector, heavily reliant on labor costs, has the potential to sustain inflation due to tight labor markets and wage increases. While studies indicate that wage growth does not drive inflation, economists remain cautious about demand-side pressure resulting from a strong labor market and resilient consumer spending.

Despite the recent moderation in inflation, some economists, including those at PNC Financial Services, continue to predict a mild recession for the United States later this year. They argue that persistent consumer demand and the Federal Reserve's high-interest rates policy could slow down business activity and increase household debt. These factors may ultimately lead to a slowdown in consumption, which is typically a precursor to a recession.

The latest CPI report provides evidence of a welcome moderation in US inflation, offering hope that the economy is heading in the right direction. The slowdown in price surges, along with potential easing in sectors such as shelter and used cars, indicates positive developments. However, economists remain cautious, citing concerns about the services sector and the potential risks associated with strong labor markets and resilient consumer spending. The Federal Reserve is expected to pause its monetary tightening campaign, assessing the cumulative effects before making further decisions.

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