US inflation came in at 4.0% in May, the lowest figure since March 2021, as the world’s largest economy appears to be ever-closer to bringing prices under control.
Yet a slower decline in core inflation, which excludes food and energy, suggests the final steps towards the target rate of 2% could take longer.
The headline Consumer Price Inflation figure of 4.0% was slightly below economists’ expectations of 4.1%.
The figure is a stark contrast from the UK, where inflation in April, the last published figure, was still 8.7%.
The lower inflation was mostly due to energy prices declining by 11.7%. On the other hand, transport services and shelter saw the biggest price rises.
Core inflation,, which is seen as a better measurement of the long-term picture on prices, was 5.3%, in line with expectations and down from April’s 5.5%.
Richard Flynn, managing director of Charles Schwab UK, said: “Today’s fall in the rate of inflation is likely to be welcomed by investors, but it remains stubbornly above the Fed’s 2% target.
“The good news is that the ‘stickiness’ in inflation is now confined to a smaller number of categories compared to earlier in the year. In recent months three sectors largely accounted for above-average inflation – housing, financial services and used cars.
“As the sectors of price inflation narrow, the overall trend will likely improve.”
The decline will add to hope that the Federal Reserve will pause its programme of interest rate rises when it announces its latest decision this week. Flynn said the Fed might pause its hikes, but it is not in position to reduce rates yet.
“Our view continues to be that the green light for the Fed to not just pause, but to pivot to rate cuts would require much weaker economic growth or more significant stress in the banking system,” Flynn said. “The Fed is already suffering a credibility problem—a pivot to rate cuts with inflation still well above their target, and in the absence of significant deterioration in employment would really damage what remains of their inflation-fighting cred.”
