Rose 4% in May, lowest in two years

Inflation is decelerating in America, giving the Federal Reserve room for a long-anticipated pause in its rate-hiking campaign when it meets tomorrow.

The US Bureau of Labor Statistics reports that America’s Consumer Price Index (CPI), which measure of inflation, rose 4 per cent in May versus a year earlier.  Core CPI, which excludes volatile food and energy prices, rose a concerning 0.4 per cent from a month ago, and 5.3 per cent from one year ago.

While the report showed an easing year-over-year inflation rate, it’s still above the Federal Reserve’s 2 per cent target. The annual increase was the smallest in more than two years and comes the same month America’s resilient job market added a mammoth 339,000 jobs last month. 

Stock futures rose ahead of the opening of today’s trading session. The Fed hiked interest rates by another quarter percentage point last month, bringing the benchmark funds rate from 5 per cent to 5.25 per cent in another aggressive move to tame inflation and avoid sparking a recession.

The central bank hinted that it was done hiking interest rates after raising them to a high not seen in 16 years. Today’s CPI report is crucial to the Fed’s next rate decision, which is set to be announced tomorrow.

Fed chair Jerome Powell has hinted that the central bank could be done hiking interest rates. Fed officials were reportedly divided earlier this month on whether to pause hikes in June, according to the minutes of their May 2-3 meeting.

“Several (policymakers) noted if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary” Fed parlance for a pause — the minutes said. At the same time, “some” officials said that the persistence of high inflation  meant that “additional (rate hikes) would likely be warranted at future meetings.”