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In May, the inflation rate in the United States continued to rise at a slower pace. This might lead the Federal Reserve to consider pausing their ongoing efforts to tighten policies this week.
According to data released by the Bureau of Labor Statistics on Tuesday, the country’s consumer price index (CPI) increased by 4.0% yearly in the month, which is lower than the 4.9% recorded in April. Economists had predicted that the number would decrease to 4.1%.
Inflation in the United States continued to ease for the eleventh consecutive month, reaching its slowest rate since early 2021. However, it is still twice the target rate of 2% set by the Federal Reserve. On a month-to-month basis, the increase was only 0.1%, slower than the 0.4% growth observed in the previous month.
Inflation was influenced by decreased airline fares and gasoline prices, which put downward pressure on overall inflation. However, this impact was counterbalanced by an increase in housing costs and the prices of used cars.
On the other hand, core prices, which exclude more volatile items such as food and energy, increased by 5.3% annually and 0.4% monthly, aligning with the predicted estimates.
The released numbers could play a role in the decision-making process of Federal Reserve policymakers as they commence a significant two-day meeting starting today.
The Fed has been raising interest rates for more than a year to combat elevated inflation, so the CPI print is expected to play a pivotal role in whether the central bank chooses to halt its tightening cycle or temporarily hike borrowing costs.
According to analysts at ING, the ongoing rise in housing costs and vehicle prices remains a concern. However, they observe a rapid improvement in the overall economic outlook. As a result, the Federal Reserve is expected to keep interest rates unchanged during its decision tomorrow. Nevertheless, the analysts predict the accompanying commentary will maintain a hawkish tone, reflecting a cautious approach.
As of 08:46 ET, according to Investing.com’s Fed Rate Monitor Tool, there was a probability of over 80% that Fed officials would maintain the benchmark rate within the range of 5.00% to 5.25%, indicating a steady rate. In contrast, the likelihood of the central bank announcing a 25 basis point increase was slightly below 20%.
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