Source: AFP
The U.S. Federal Reserve’s favored measure of inflation eased slightly in May, according to government data released Friday, as goods prices eased.
The data give the US central bank further evidence that the fight against inflation is back on track after a small rise in the annual rate of inflation in the first quarter of the year.
The personal consumption expenditures (PCE) price index rose at an annual rate of 2.6 percent in May, the Commerce Department said in a statement, while monthly inflation was unchanged.
That was in line with the median forecast of economists surveyed by Dow Jones Newswires and the Wall Street Journal.
“It’s just additional news that monetary policy is working, inflation is gradually coming down,” San Francisco Fed President Mary Daley told CNBC on Friday after the data was released.
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“This is a relief for businesses and households struggling with persistently high inflation,” added Daly, who has a vote on the Fed’s rate-setting committee this year.
On an annual basis, the prices of goods decreased by 0.1%, while the prices of services increased by 3.9%.
The data certainly adds to the case for the Fed to consider cutting interest rates, which are currently at a 23-year high.
But they are unlikely to force policymakers to take immediate action as inflation remains stuck above the bank’s long-term target of 2%.
Stripping out volatile food and energy prices, core inflation eased to an annual rate of 2.6% in May, in line with expectations — a sign that underlying prices have eased further.
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Data released Friday also showed personal income rose 0.5 percent from a month earlier, the Commerce Department said, up slightly from 0.3 percent in April.
Personal savings as a percentage of disposable income stood at 3.9% in May, up slightly from a revised 3.7% a month earlier.
“The inflation landscape is changing favourably,” High Frequency Economics chief economist Rubeela Farooqi wrote in a note to clients on Friday.
“Coupled with a more subdued path for household spending and growth, it supports a shift in monetary policy to a less restrictive stance, possibly as early as September,” he added.
Futures traders are currently assigning just under 70 percent chance that the Fed will have cut interest rates by mid-September, according to CME Group data.
That’s up sharply from a month ago, when odds of a September cut hovered around 50%, suggesting markets saw the first cut coming only in the final quarter of this year.
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Earlier this month, the Fed made just one rate cut this year, down from three in its previous forecast published in the spring.
Source: AFP
