The inflation figures are considered a decisive factor for the monetary policy of the Fed.
(Photo: Bloomberg)
Frankfurt, Dusseldorf The inflation rate in the USA fell again in May. Consumer prices (CPI) in the world’s largest economy rose by 4.0 percent compared to the same month last year; that was the lowest value since the end of March 2021. This was announced by the Department of Labor on Tuesday. Analysts had expected inflation to slow to 4.1 percent. In April, consumer prices rose by 4.9 percent. So-called core inflation, which excludes energy and food prices, remained somewhat more stubborn: it fell from 5.5 to 5.3 percent.
The overall price increase within the month also fell very clearly: from 0.4 percent in April to just 0.1 percent in May. Here, too, core inflation remained more rigid: it remained at 0.4 percent.
The inflation figures are considered a decisive factor for the monetary policy of the Fed. The US Federal Reserve will decide on further rate hikes tomorrow, Wednesday. It has defined an inflation rate of two percent as a target value. Experts mostly expect an interest rate pause, which could, however, be followed by another rate hike in July. Most recently, Fed Chair Jerome Powell has repeatedly emphasized that the decision depends on new data.
Rate hikes ten times in a row
Before the new inflation figure was announced, Deutsche Bank had forecast that the Fed would continue to quote its key interest rate in a range of 5.0 to 5.25 percent. So far, the Fed has raised interest rates ten times in a row, which is considered a very rapid tightening of monetary policy by historical standards. According to Deutsche Bank, the Fed will raise interest rates one last time in July, then to a range between 5.25 and 5.5 percent.
In the coming year, it expects interest rate cuts by a total of 2.75 percentage points, with the first step in March. “That would bring rates slightly below the long-term neutral rate, which we currently see at 3.0 percent,” the comment reads. The neutral rate is the interest rate at which the economy is in equilibrium, i.e. neither fueled nor slowed down.
Swiss bank Vontobel matched Deutsche Bank’s forecasts for interest rate hikes earlier in the week. She put the market data-readable probability of an interest rate hike of a quarter percentage point in June at 27 percent.
The European Central Bank (ECB) also meets on Thursday. A further interest rate hike is mainly expected here.
More to come
More: How to protect yourself against inflation with the right investments