US inflation slows as interest rates hold

10 hours ago

By Charlotte Edwards, BBC business journalist

Reuters

Rising consumer prices in the United States eased slightly last month, official data showed, ahead of the decision to keep interest rates at their highest level in 23 years.

According to the U.S. Department of Labor, prices rose 3.3% over the year through the end of May, down 0.1 percentage points from the previous month.

Core inflation, which excludes the most volatile items like food and energy prices, has also slowed despite the fact that rents continue to weigh on household budgets.

Although borrowing costs are at their highest level in years, Federal Reserve officials have postponed any interest rate cuts this month.

The American central bank maintained its target rate between 5.25% and 5.5% on Wednesday.

He also predicted a one-time rate cut this year – but policymakers were divided.

Four expected no reduction, seven expected one reduction and eight thought there would be two.

Following the inflation data, traders increased their bets on a rate cut in September, and also increased their bets on a second cut in December.

The inflation figure was lower than some economists' expectations, meaning they now think a rate cut this year is more likely, but it remains above the US central bank's 2% target.

In the United States, people are still suffering from rising rents and electricity, while food inflation remains at around 2%.

The inflation rate in the United States has varied for other goods and services.

The rate of rise in transport prices, such as taxi fares, rose by more than a tenth in the year to May, while used car inflation fell by almost a tenth.

Lindsay James, investment strategist at Quilter Investors, said that despite inflation falling, markets “remain stuck in a holding trend”.

“[We are] we must wait either for inflation to fall more quickly towards the 2% target, or for the economy to buckle under pressure and require a new round of stimulus measures. »

The inflation rate is the rate of increase or decrease in prices over a given period.

In the United States, the Bureau of Labor Statistics uses the Consumer Price Index to measure inflation.

This obtains its information from 23,000 companies and involves checking the prices of around 80,000 consumer items.

Although the rate of increase in average prices has remained steady, some major U.S. retailers, including Target, have cut prices on products such as food and baby products to try to attract customers.

The price of milk at the supermarket saw a drop of 1.3% and the prices of other soft drinks also fell.

Prices of fruits and vegetables remained unchanged.

Rents rose 0.4%, matching April's increase, and health care costs rose 0.5%.

Prescription drug prices increased by 2.1% and the cost of hospital services also increased by 0.5%.

Developments in the American economy are particularly important in the run-up to the presidential election on November 5.

Inflation figures are said to affect US President Joe Biden's popularity, as Americans continue to feel the effects.

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