Inflation in the United States has fallen to less than half of its peak from a year ago, aided by price drops in essential goods such as eggs, petrol, and furniture.
The US Labor Department reported that inflation, which measures the rate at which prices rise, stood at 4% over the 12 months leading up to May, down from April’s 4.9% and marking the 11th consecutive month of easing price increases.
As the US central bank convenes to discuss strategies for combating inflation, experts anticipate that the Federal Reserve will maintain interest rates at their current levels this month.
This decision reflects the progress made in alleviating price pressures through higher borrowing costs, which have curbed borrowing and spending.
The Federal Reserve had previously raised borrowing costs significantly since last year, increasing the key interest rate to over 5% from nearly zero in March 2022.
The price of eggs has experienced its largest decline since 1951, plummeting by 13.8% compared to last year.
Similarly, gasoline prices have dropped by nearly 20%. Despite these positive developments, inflation remains higher than the desired 2% rate that the Federal Reserve considers healthy.
The Labor Department’s report revealed ongoing price increases in various sectors, particularly in housing costs like rents, which continue to rise sharply.
Chief Economist at Fitch, Brian Coulton, cautioned against relying solely on the headline inflation figure, pointing out that the notable decline was mainly attributed to lower gasoline prices.
Coulton emphasized that underlying inflationary pressures persist at stubbornly high levels. In June 2022, US inflation reached its peak at 9.1%, driven by energy and food price spikes amid the war in Ukraine, marking the fastest rate since November 1981.
While the situation has improved since then, some analysts argue that further measures are necessary to control inflation.
Core inflation, which excludes volatile food and energy products and is considered a more accurate indicator of underlying pressures, remained steady at 0.4% from April to May for the third consecutive month, according to the Labor Department.
Although no interest rate hike is expected this week, Alexandra Wilson-Elizondo of Goldman Sachs Asset Management anticipates that the Federal Reserve will revisit the matter in their July meeting.
Wilson-Elizondo emphasized that the pace of disinflation is inconsistent with the Federal Reserve’s target of 2%, citing recent rate increases in Australia and Canada due to persistent inflationary pressures.
Meanwhile, the European Central Bank is widely predicted to raise rates this week’s upcoming meeting.