06/28/2024 – 14:54
Inflation in the United States fell slightly in May to 2.6% year-on-year, as expected, according to the PCE index published this Friday (28) by the Department of Commerce.
In April, 12-month inflation was 2.7%, according to the PCE, the index most followed by the Federal Reserve (Fed, American central bank). Monthly inflation in May was zero, compared to 0.3% in the previous month.
The results are in line with the average forecast of economists surveyed by Dow Jones Newswires and the Wall Street Journal.
The annual PCE change “slowed to its slowest pace since 2021 and is within range of the Federal Reserve’s 2% target,” said Rubeela Farooqi, chief economist at High Frequency Economics.
The PCE evolved in the same direction as the consumer price index (CPI), published at the beginning of the month and to which pensions are indexed, which slowed to 3.3% in the annual comparison and fell to zero in one month.
Excluding volatile food and energy data, so-called underlying inflation fell in May to 2.6% year-on-year from 2.8% the previous month, and to 0.1% monthly from 0.3% previously.
– Crucial issue in the election –
Inflation will be an important topic for Americans when they vote to elect their next president on November 5, and was the topic chosen to open the first debate between candidates Joe Biden and Donald Trump on Thursday night.
“Inflation is killing our country,” Trump told the Democratic president during the discussion at CNN studios in Atlanta.
“I gave him a country essentially without inflation. It was perfect. It was so good that all he had to do was leave it alone,” said the former Republican president. “He destroyed it.”
In response, Biden declared that Trump “absolutely decimated” the US economy when he was president (2017-2021).
“There was no inflation when I took office. You know why? The economy was paralyzed,” the Democrat said, arguing that his administration helped create “millions” of new jobs.
Consumers remain concerned about the effects of inflation on their purchasing power. The level of confidence in the economy deteriorated in June to 68.2 points (compared to 69.1 in May), according to an estimate from the University of Michigan published this Friday.
– Rate cuts? –
But Friday’s inflation data adds to arguments for the Fed to consider cutting interest rates, currently at a 23-year high, by 5.25%-5.50%. This would make credit less costly for families and companies.
“The inflationary context is evolving favorably and, associated with a more moderate trajectory in household spending and growth, favors a change in monetary policy to a less restrictive stance, perhaps as early as September,” stated Farooqi.
The Fed warned during its last meeting in mid-June that it would take several months of falling inflation before it would start cutting rates.
The heads of the Monetary Policy Committee (FOMC) expect a single interest rate cut, of just 0.25 percentage points, by the end of the year.
US household incomes grew faster in May than in April (+0.5% and +0.3%), as did spending (+0.2% and +0.1%), according to data from the Commerce Department.
Consumption is the engine of growth in the world’s largest economy and represents more than two-thirds of GDP.
Data published Friday by the Commerce Department also shows that personal income rose 0.5% from the previous month, slightly up from 0.3% in April.
Personal savings as a percentage of disposable income came in at 3.9 percent in May, up slightly from a revised 3.7 percent the previous month.
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