Inflation slowed to 2.6% in May in the United States, according to the PCE index published Friday, the day after the debate between Donald Trump and Joe Biden who mutually blamed each other for being at the origin of the surge in prices.
This development is in line with analysts’ expectations. And this measure of inflation is moving in the same direction as the CPI index, released earlier in the month.
According to the PCE index released Friday by the Commerce Department, consumer prices increased 2.6% year-on-year, compared to 2.7% in April. Over one month, they remained identical, the inflation rate being zero, compared to 0.3% the previous month.
The PCE index is the one favored by the American central bank (Fed). The institution wants to bring it back to 2% and thinks it will achieve this in 2026. The IMF, more optimistic, is counting on mid-2025.
The annual change in PCE “decelerated to its slowest pace since 2021 and is within reach of the Fed’s 2% target,” commented Rubeela Farooqi, chief economist for High Frequency Economics.
Excluding volatile food and energy data, core inflation fell in May to 2.6% year-on-year, from 2.8% the previous month, and to 0.1% month-on-month from 0.3%.
According to the CPI index, to which pensions are indexed, inflation slowed to 3.3% in May over a year, and fell to zero over a month.
Inflation is ‘killing’ the United States
“The inflation context is evolving favorably and, associated with a more moderate evolution of household spending and growth, favors a shift in monetary policy towards a less restrictive orientation, perhaps from September,” added Rubeela Farooqi .
That is, the Fed could finally lower its rates, which have been at their highest level since 2001 for nearly a year, to the 5.25 to 5.50 percent range. That would make credit less expensive for households and businesses.
The Fed had warned, during its last meeting in mid-June, that it would need to observe several months of falling inflation for the rate reduction to be launched.
Its chairman, Jerome Powell, notably estimated that the increase in wages, which is good news for Americans’ wallets, remains too high to allow inflation to return to an acceptable level.
However, American household incomes grew faster in May than in April (+0.5% compared to +0.3%), as did their spending (+0.2% compared to 0.1%), according to figures from the Commerce Department.
Consumption is the engine of growth in the world’s largest economy: it represents more than two thirds of gross domestic product (GDP).
Inflation will be on Americans’ minds when they vote on November 5 to choose their new president. The subject is so important that it opened the first televised debate of the campaign between the two candidates on Thursday evening.
Donald Trump has accused outgoing Democratic President Joe Biden of being behind the inflation that the Republican candidate says is “killing” the United States.
Joe Biden accused his predecessor of having “really decimated the economy”. “That’s why there was no inflation,” he said when he took office at the White House in January 2021.
ats, awp, afp
