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US inflation forecast to have accelerated in May

US consumer prices are expected to have seen another large monthly increase as services-related inflationary pressures continue to mount, adding urgency to the Federal Reserve’s plans to tighten monetary policy aggressively.

According to a consensus forecast prepared by Bloomberg, the consumer price index released Friday by the Bureau of Labor Statistics is expected to rise 0.7 percent in May, significantly faster than the 0.3 percent increase in the prior period.

At that rate, the year-over-year increase is projected to be 8.2 percent, down from its March peak, but still at levels last seen 40 years ago. Economists have previously said that annual inflation should also begin to decline as it begins to overlap last year’s very high levels.

Once volatile items such as food and energy have been taken out, “core” CPI is expected to rise 0.5 percent, roughly the same momentum as the previous month. However, the annual rate will decrease slightly to 5.9 percent, compared to the rate of 6.2 percent in April.

The inflation spike has mainly been slowed by a further rise in energy prices, with national gasoline prices approaching nearly $5 a gallon due to the ongoing conflict between Russia and Ukraine, and a steady rise in service-related costs, such as those associated with with the travel industry. These gains have offset a moderation in spending on certain goods.

The Biden administration has tried to blame Russian President Vladimir Putin by linking the rise in commodity prices to the war. A senior White House official said on Thursday that supply chain disruptions caused by China’s Covid-19 lockdowns also likely maintained upward pressure on inflation in May.

The US central bank has already committed to move monetary policy “quickly” to a more “neutral” level that no longer stimulates the economy, but further evidence that inflation is becoming more entrenched could force top officials to lower interest rates even further. stronger than financial markets expect. Policymakers have already indicated that the Fed will make at least a series of half-point rate hikes, following the first adjustment of that magnitude since 2000 in May.

The Fed will almost certainly hike another half a percentage point at its policy meeting next week, and traders have priced in Federal Funds interest rates to rise to about 2.9 percent from its current target range of 0 by the end of the year. 75. percent to 1 percent.

Vice-Chairman Lael Brainard recently made it clear that the Fed could continue the half-point pace through September and only consider returning to more typical quarter-point increments after a “slowdown” in monthly inflation prints.

High inflation has become the biggest economic challenge for the Biden administration, whose efforts to bring about one of the fastest labor market recovery in U.S. history have been overshadowed by the toll rising prices have taken on American households.

Treasury Secretary Janet Yellen recently admitted she was “wrong” about the extent to which inflation would become a persistent problem. A new biography also claimed she initially wanted to roll back President Joe Biden’s $1.9 trillion milestone package passed last year.

In congressional testimony this week, Yellen defended the White House’s actions at a time of extreme economic uncertainty, but acknowledged that inflation is at “unacceptable” levels. Fighting inflation is the government’s top priority, she said, and called on Congress to do more to help with those efforts as well.

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