US inflation slowed down significantly in June, marking the lowest rate in a year, according to the Labor Department. Over the past 12 months, prices increased by 3%, driven partly by lower petrol prices.
This trend has continued for three consecutive months, offering relief to households grappling with high living costs.
The Federal Reserve, observing these developments, may consider lowering interest rates as early as September to further support economic recovery.
The Fed’s key lending rate has been at over 5.3%, its highest in about 20 years, since last year. This high rate has been aimed at curbing inflationary pressures, which have been exacerbated by the pandemic. Analysts believe that the recent inflation report could persuade the Fed that its measures are working effectively.
In a notable shift, prices actually decreased by 0.1% from May to June, marking the first monthly decline in several years. Seema Shah, chief global strategist at Principal Asset Management, commented that these latest inflation figures increase the likelihood of a Fed rate cut in September.
The White House has faced criticism due to economic dissatisfaction linked to rising living costs and interest rates. Despite overall inflation easing, prices for groceries have risen by 1.1% over the past year, while housing costs have climbed by 5.2%. This mixed trend reflects ongoing challenges in certain sectors of the economy.
Regarding Fed policy, Republican lawmakers expressed concerns that a rate cut before the November election could be seen as attempting to stimulate the economy for political gain.
Fed chairman Jerome Powell, however, emphasized the bank’s independence and data-driven decision-making process.
Powell indicated that a rate cut is probable, highlighting the Fed’s focus on balancing economic risks. He noted the importance of favorable inflation data alongside a robust labor market, despite recent upticks in the unemployment rate.
The broader economic landscape also shows signs of strain, with consumer spending weakening as more companies report declines in sales. Pepsi-Co, for example, reported decreased sales in its North America divisions, reflecting broader challenges in consumer behavior.
Overall, while the recent slowdown in inflation offers some optimism for economic stability, ongoing uncertainties and challenges remain, shaping the Fed’s cautious approach to future monetary policy adjustments.
Credit : BBC
https://www.bbc.com/news/articles/cpv3kz9q167o