US inflation has reached its lowest level since 2021, largely due to the decline in fuel prices

In the US, prices for eggs, petrol, and furniture experienced a decrease last month, resulting in a significant reduction in inflation, which is now less than half of its peak from a year ago.

According to the Labor Department, inflation stood at 4% for the 12-month period ending in May, representing the rate at which prices have increased.

In April, inflation stood at 4.9%, but it has now decreased to 4%, continuing the trend of price increases easing for the 11th consecutive month.

The timing of this update coincides with a meeting of the US central bank, where the discussion revolves around whether further actions are necessary to combat inflation.

In an effort to curb rising prices, officials have significantly increased borrowing costs in the world’s largest economy since last year. This move has led to the Federal Reserve’s key interest rate surpassing 5%, a substantial rise from its near-zero level in March 2022.

Analysts anticipate that the Federal Reserve will maintain unchanged interest rates this month, acknowledging the progress made in alleviating price pressures. The decision aligns with the understanding that higher borrowing costs have had an impact on borrowing and spending patterns.

Egg prices have experienced their largest decline since 1951, dropping by 13.8% compared to last year. Additionally, gasoline prices have fallen by nearly 20%.

According to the Labor Department, inflation currently stands at 4%, marking its lowest level since March 2021.

However, the latest update reveals that prices in various sectors of the economy are continuing to rise steadily, surpassing the 2% threshold considered healthy by the Federal Reserve.

Notably, housing costs, encompassing rents, continue to experience significant increases. Additionally, steep price rises have been observed in categories such as beer, women’s clothing, and various services, ranging from car maintenance to school fees.

Brian Coulton, Chief Economist at Fitch, cautioned against being misled by the significant decline in headline inflation primarily driven by lower gasoline prices. He emphasized that these figures reveal persistent and substantial underlying inflationary pressures that remain at high levels.

In June 2022, inflation in the US reached a peak of 9.1%, driven by surges in energy and food prices due to the war in Ukraine. This marked the fastest rate of inflation since November 1981.

While the issue has diminished since then, certain analysts suggest that the Federal Reserve will need to take additional measures to effectively manage and curb inflation.

From April to May, core inflation, which is considered a more reliable indicator of underlying pressures as it excludes volatile food and energy products, experienced a 0.4% increase.

According to the Labor Department, the pace of core inflation has remained constant for three consecutive months. Alexandra Wilson-Elizondo from Goldman Sachs Asset Management expressed her expectation that the Federal Reserve would not raise rates during the current week, but suggested that the matter would likely be revisited during their July meeting.

According to her, the most recent figure brought relief to the market as it met expectations, confirmed the downward trend in inflation, and supported the market’s anticipation of a pause from the Federal Reserve. Nevertheless, she pointed out that the rate of decreasing inflation remains incompatible with the Fed’s 2% target.



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By Ryan

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