Die Inflation in the USA loses a lot of power. Consumer prices rose by only 4.0 percent in May after 4.9 percent in April, the Department of Labor announced in Washington on Tuesday. Economists polled by Reuters had only expected a decline to 4.1 percent. The US Federal Reserve is likely to record the fall in the inflation rate after ten monetary tightening steps in a row as a stage victory. “The inflation issue is becoming less explosive,” says chief economist Thomas Gitzel from VP Bank. In anticipation of the rate hike pause, investors stocked up on stocks. The German share index Dax and the EuroStoxx50 slightly extended their gains. The Euro and the “anti-inflation currency” gold were also in demand.
Despite falling inflation, the US monetary authorities are worried about the still high core rate, in which the volatile prices for energy and food are left out. This indicator for the so-called underlying inflation fell only slightly to 5.3 from 5.5 percent. Banking economist Gitzel sees inflation continuing to recede: “Inflation rates will continue to fall significantly in the coming months. The inflation rate should already be close to the three percent mark in June,” predicted the expert. The core inflation rate will also maintain its falling trend – especially if rents rise less significantly in the coming months.
Is the interest rate break coming now?
Experts expect that the US Federal Reserve will be able to take a break for the first time since the beginning of 2022 after a series of interest rate hikes in the fight against high inflation. After ten monetary policy tightening steps in a row, it is likely to record the decline in the inflation rate as a stage victory. But their stability target of an inflation rate of two percent has not yet been reached. The monetary watchdogs are probably worried about the still high core rate of inflation, in which the volatile prices for energy and food are left out. That rate fell only slightly to 5.3 percent from 5.5 percent. Economists had expected this decline.
The core rate is considered a good indicator of fundamental inflation trends and is therefore closely analyzed by monetary authorities. They are considering keeping the current interest rate range of 5.00 to 5.25 percent on Wednesday. However, a pause should not be interpreted as a signal that the interest rate peak has already been reached, stressed Fed Director Philip Jefferson recently. This means that the era of interest rate hikes may not be over yet, despite the slowdown in inflation, and an upward step may follow in July.
Investors stocked up on Tuesday in anticipation of a pause in interest rate hikes by the US Federal Reserve. Dax and EuroStoxx50 increased their gains slightly and rose by 0.3 percent to 16,143 and 4328 points respectively. The euro and the “anti-inflation currency” gold were also in demand. They each rose in price by half a percent to $1.0812 and $1968 per troy ounce (31.1 grams).
The Fed has been fighting high inflation since March last year Raised interest rates ten times. The interest margin is now between 5.0 and 5.25 percent. The next decision is due on Wednesday, and a pause in rate hikes is generally expected. However, some analysts warn that central bankers may wait for a more sustained slowdown in the economy before actually ending their rate hikes.
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