Core inflation and rising prices
These so-called “core” prices are expected to have risen 0.3% from April to May, the same as in the previous month, according to a survey of economists by data provider FactSet. Compared with a year earlier, core inflation is thought to have dipped from 3.6% to 3.5%.
Even as overall inflation moderates, such necessities as groceries, rent and health care are much pricier than they were three years ago—a continuing source of public discontent and a political threat to President Joe Biden’s re-election bid. Most other measures suggest that the economy is healthy: Unemployment remains low, hiring is robust and consumers are traveling, eating out and spending on entertainment. Yet polls show that the cumulative price increases are weighing on Biden’s popularity.
Monitoring inflation in the U.S.
The U.S. Fed is closely monitoring each month’s inflation report for signs that it’s succeeding in its fight against rising prices. A rise in core consumer prices of 0.3% is too high, over time, to be consistent with the central bank’s 2% annual inflation target and could be seen as a disappointment. Still, the U.S. Fed’s officials prefer a separate inflation measure, which typically comes in slightly lower than Wednesday’s consumer price index.
After their latest two-day policy meeting ends Wednesday—just hours after the release of the May inflation data—the officials are poised to leave their benchmark interest rate unchanged at a 23-year high of about 5.3%.
Lower gas prices are thought to have slowed overall inflation to just 0.1% from April to May, according to FactSet, down from 0.3% the previous month and the lowest figure since October. Measured from a year earlier, consumer prices are believed to have risen 3.4% in May, the same as in April.
Persistently elevated inflation has posed a vexing challenge for the U.S. Fed, which raises interest rates—or keeps them high—to try to slow borrowing and spending, cool the economy and ease the pace of price increases. The U.S. Fed has kept its key rate unchanged for nearly a year after having rapidly raised it in 2022 and 2023. Those higher rates have led, in turn, to more expensive mortgages, auto loans, credit cards and other forms of consumer and business borrowing.
The longer the U.S. Fed keeps borrowing costs high, the more it risks weakening the economy too much and potentially causing a recession. Yet if it cuts rates too soon, it risks reigniting inflation. Most of the policymakers have said they think their rate policies are slowing growth and should curb inflation over time.
Is the U.S. having a soft landing
Inflation had fallen steadily in the second half of last year, raising hopes that the U.S. Fed could pull off a “soft landing,” whereby it manages to conquer inflation through higher interest rates without causing a recession. Such an outcome is difficult and rare.
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