Inflation is falling in the United States as interest rates remain stable

  • author, Charlotte Edwards
  • Role, BBC Business Correspondent

Official data showed that the rise in consumer prices in the United States eased slightly last month, before a decision was made to maintain interest rate levels at their highest level in 23 years.

According to the US Department of Labor, prices rose 3.3% in the year to the end of May, down 0.1 percentage point from the previous month.

Core inflation, which excludes more volatile items such as food and energy prices, also slowed, although rents continued to weigh on household budgets.

Although borrowing costs are at their highest rate in years, Federal Reserve officials have held back from making any interest rate cuts this month.

The US central bank kept its interest rate target at 5.25% to 5.5% on Wednesday.

It also expected one rate cut this year, but policymakers were divided.

Four expected no reduction, seven expected one reduction, and eight expected that there would be two reductions.

In the wake of the inflation data, traders added to their bets on an interest rate cut in September, and also increased their bets on a second cut in December.

The inflation figure was lower than some economists had expected, meaning they now believe a rate cut this year is more likely, but it is still above the US central bank’s target of 2%.

The inflation rate in the United States varies with respect to other goods and services.

The pace of rises in transport prices, such as taxi rides, rose by more than a tenth in the year to May, while used car inflation fell by about a tenth.

Lindsay James, investment strategist at Quilter Investors, said that despite the decline in inflation, markets are “still stuck in a holding pattern”.

“[We are] Waiting for inflation to fall more quickly towards the 2% target, or for the economy to buckle under the pressure and require a new wave of stimulus.

The inflation rate is the rate at which prices rise or fall during a specific period.

In the United States, the Bureau of Labor Statistics uses the Consumer Price Index to measure inflation.

This gets its information from 23,000 companies and includes examining prices for about 80,000 consumer products.

While the pace of average price increases has remained steady, some major US retailers, including Target, have lowered prices on goods such as food and baby products in an attempt to attract customers.

The price of milk in the supermarket fell by 1.3%, and the prices of other non-alcoholic drinks also fell.

Prices of fruits and vegetables remained unchanged.

Rent rose 0.4%, matching April’s increase, and health care costs rose 0.5%.

Prescription drug prices rose by 2.1%, and the cost of hospital services rose by 0.5%.

The performance of the US economy is particularly important in the period leading up to the presidential elections on November 5.

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