Inflation measures tracked by the Fed fall to their lowest level in two years


WASHINGTON (AP) — Inflation, closely monitored by the Federal Reserve, fell to its lowest level since April 2021 last month, driven by falling gasoline prices and slowing food price gains.

At the same time, consumers saw little growth in spending last month, rising just 0.1% after posting a solid 0.6% increase in April.

Prices rose 3.8% in 12 months in May, down from 4.4% a year earlier in April, according to the Inflation Index. And from April to May, prices rose by just 0.1%.

Still, progress in easing overall inflation last month was tempered by higher ‘core’ prices, which exclude volatile food and energy costs. This confirms the Fed’s view that continued rate hikes are necessary to overcome high inflation.

Core prices rose 4.6% year-on-year in May, slowing slightly from the annual rate of increase of 4.7% in April. It was the fifth straight month that the core reading was 4.6% or 4.7%, indicating that the Fed’s 10 straight rate hikes over the past 15 months have not kept prices in all categories under control. there is Core prices rose 0.3% in April and May, and if this pace continues, inflation will stay well above the Fed’s 2% target.

Fed Chairman Jerome Powell cuts inflation-adjusted salaries for Americans, disrupting businesses The Fed will push interest rates to long-term highs to contain prices that are still rising, a government report on Friday said. It was announced two days after it said it was prepared to keep it. Fed policymakers collectively expect two more rate hikes this year.

“The bottom line is that (interest rate) policy hasn’t been restrictive enough for long enough,” Powell said at an international forum in Sintra, Portugal. He said prices for services such as restaurant meals, hotel rooms and medical care are still rising rapidly, partly because many businesses need to raise wages to attract and retain workers. I repeated my opinion that

The inflation measure released on Friday is called the Personal Consumption Expenditure Price Index, which is separate from the better-known government consumer price index. Earlier this month, the government announced that the CPI in May was 4% higher than 12 months ago.

Since inflation began to spike after the pandemic recession, the PCE index has tended to show lower inflation than the CPI. Part of the reason is that rent, one of the biggest inflation drivers, weighs twice as much in the CPI as his PCE. Additionally, the PCE index takes into account changes in how people shop when inflation spikes. As a result, we are able to capture emerging trends as consumers move away from expensive domestic brands in favor of cheaper store brands.

Starting with its first rate hike in March 2022, the Fed raised its benchmark rate to a 16-year high of about 5.1% before holding off on a rate hike at its most recent meeting earlier this month.

Powell suggested on Wednesday that the Fed could slow rate hikes to the same pace as other meetings, but warned that central bank policymakers have yet to agree. A slower pace of rate hikes would give Fed officials a better sense of how the economy is being affected, perhaps avoiding a credit tightening enough to send the economy into a painful recession. You can.

“But I’m not going to take (rate hikes) off the back-to-back meeting at all,” Powell said.

The economy has shown remarkable resilience despite Fed rate hikes, overturning long-standing expectations of a recession. A measure of economic growth in the first three months of the year jumped Thursday to a robust 2% annualized rate, up from previous forecasts of 1.3%.

Still, economic resilience can have many benefits. The Fed is raising interest rates to cool corporate and consumer borrowing and spending. Employers hope this will reduce demand for workers, potentially slowing wage growth and inflationary pressures as a result.

But if the economy continues to expand at a steady pace, the Fed will likely have to raise interest rates further to meet its goal of returning inflation to 2%.

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