Headline inflation recorded a zero reading in May pushing the annual rate down to 3.3 per cent from 3.4 per cent, while core inflation – which excludes food and energy costs – rose 0.2 per cent in May, the smallest increase since October, which left the annual rate at 3.4 per cent down from 3.6 per cent.and left financial markets pricing in the chance of a 0.25 percentage point interest rate cut in September at 61 per cent up from 45 per cent before the inflation figures were released.
The figures were well received by President Joe Biden, whose polling on economic management is inching back up with just five months to go before his re-election bid.“Prices are still too high, but today’s report shows welcome progress on lowering inflation,” the president said. While higher interest rates have slowed the economy with more expensive mortgages, auto loans, credit cards and other forms of consumer and business borrowing, headline and core inflation readings are still well above the Fed’s inflation target of 2 per cent.
Citi is forecasting the personal consumption measure of inflation is likely to be closer to 2.6 per cent, down from 2.8 per cent, when readings for May are released. US inflation remains sticky due in part to the cost of rent. Shelter costs rose again in May by 0.4 per cent and are now up 5.4 per cent over the last year.Other key costs such as transport services which are running at an annual rate of 10.5 per cent saw their first sign of improvement. Transport service costs decreased 0.5 per cent in May – the lowest since September 2021.
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