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.
Consumer prices rose 2.6 percent from a year earlier, down from 2.7 percent in April, according to the Commerce Department’s PCE index released Friday. They were unchanged from a month earlier, with the inflation rate at zero, down from 0.3 percent the previous month.
The PCE index is the one favored by the American central bank (Fed). The institution wants to reduce it to 2% and expects to 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, so-called core inflation fell in May to 2.6% year-on-year, after 2.8% the previous month, and to 0.1%. over one month compared to 0.3%.
According to the CPI index, on which pensions are indexed, inflation slowed to 3.3% in May over one year, and fell to zero over one month.
Inflation “kills” the United States
“The inflation environment is evolving favourably and, together with a more moderate evolution of household spending and growth, supports a shift in monetary policy towards a less restrictive stance, perhaps as early as September,” added Rubeela Farooqi.
That is to say, the Fed could finally lower its rates, which have been at their highest level since 2001 for almost a year, to the range of 5.25 to 5.50%. This would make credit less expensive for households and businesses.
The Fed had warned at its last meeting in mid-June that it would need to see several months of falling inflation before the rate cut could be initiated.
Its president, Jerome Powell, notably estimated that the rise in wages, which is good news for Americans’ wallets, remains too high to allow a return of inflation 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 accounts for more than two-thirds of gross domestic product (GDP).
Inflation will be on Americans’ minds when they vote on Nov. 5 to choose their new president. The issue is so important that it opened the first televised debate of the campaign between the two candidates on Thursday night.
Donald Trump has accused outgoing Democratic President Joe Biden of being at the origin of inflation which, according to the Republican candidate, 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 in the White House in January 2021.
This article was published automatically. Sources: ats / awp / afp
