The US inflation landscape showed encouraging signs of easing in May, as the core Consumer Price Index (CPI), excluding volatile food and energy prices, rose by a modest 0.2% from April, the smallest monthly increase since October. This deceleration in inflation has bolstered expectations that the Federal Reserve may consider reducing its benchmark interest rate, with some analysts predicting the potential for rate cuts to begin as early as September. The annual rate of underlying prices increased by 3.4%, which is below the 3.6% recorded in the previous month.The report also indicated that grocery costs remained unchanged, and gas prices fell nationally by 3.6%. Despite the moderation in general inflation, essential products such as food, rent, and healthcare are still significantly more expensive than three years ago, which continues to generate public discontent and poses a political threat to President Joe Biden’s re-election. However, most indicators suggest a healthy economy, with unemployment remaining low, hiring solid, and consumers continuing to spend on travel, restaurants, and entertainment.The stock market experienced a surge after the announcement of the decrease in inflationary pressures in May, with futures of major US indices like the Dow Jones Industrial Average and the S&P 500 rising. Additionally, Treasury bond yields fell, signaling investor confidence in the economic outlook. The Federal Reserve, which has maintained its key fed funds rate at a 23-year high since last July, is expected to hold its benchmark interest rate steady, although the May inflation data may influence Chair Jerome Powell’s speech on future interest rate decisions.
Key points
- US core CPI rose by only 0.
- Annual underlying prices rose 3.
- Stock markets and Treasury bond yields responded positively to the inflation report, indicating investor confidence.
2% from April to May, the smallest increase since October, signaling a potential slowdown in inflation.
4%, with expectations of interest rate cuts by the Federal Reserve as early as September.
