Consumer prices in the United States cooled last month, though some measures of underlying price pressures remained high. Read more
Still, last month’s drop-off in overall inflation isn’t likely to convince the Fed’s policymakers that they’re close to curbing the high inflation that has gripped the nation for two years. The Fed tends to focus more on “core” prices, which exclude volatile food and energy costs and generally provide a clearer view of inflation.
Last month’s core inflation was fuelled mainly by high apartment rental costs and a second straight jump in used car prices, which soared 4.4 per cent just from April to May. On the other hand, wholesale prices of used cars declined last month, which may foretell lower retail used-car prices in coming months.Article content
The stubbornness of underlying inflation reflects a fundamental challenge for the Fed: The economy has steadily defied long-standing forecasts for a recession, dating back more than a year. Instead, businesses have kept hiring at a healthy pace, average paychequers are climbing and workers are freely spending their larger wages.
The Fed has raised its benchmark rate by a hefty 5 percentage points over the past 15 months — the fastest pace of rate increases in four decades. Those hikes have led to much higher costs for mortgages, auto loans, credit cards and business borrowing. The Fed’s goal is to slow borrowing and spending, cool the economy and tame inflation — without causing a deep recession. It’s a notoriously difficult task.There are some signs that the Fed’s efforts are having the desired effect.
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