Inflation in the US was four percent year-on-year in May, which is the weakest inflation since March 2021. And that’s good news, according to BNR in-house economist Han de Jong.
While he doesn’t think Americans have taken inflation at a standstill, he can only conclude that inflation is declining sharply. “It’s still double the target, but it was still 4.9% a month earlier,” he says. ‘This is a significant decline.’
“There is a significant decline”
According to De Jong, the reason for this drop is the drop in energy prices. Core inflation – which excludes food and energy prices – also fell, but only from 5.5% to 5.3%. According to De Jong, it is therefore too early to say that inflation is under control, but the Americans are on the right track.
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The US central bank – the Federal Reserve (Fed) – will present the new interest rate decision for the US tomorrow. Analysts and economists predict that there will be no increase in the interest rate, but that the current interest rate will be maintained. De Jong is not surprised. “The Fed has already indicated that this is the plan,” he continues. “Now they have raised interest rates ten times in a row, by a total of five percentage points. It’s big enough.’
Furthermore, according to De Jong, one must realize that interest rate increases always have a lag. That is, if the US keeps raising interest rates until inflation hits 2%, it’s probably gone on too long. “Then you hurt the economy for no reason,” says De Jong. “So there’s every reason to say we’re lagging behind, and today’s numbers won’t change our minds.”
Time frame
According to De Jong, the possible Fed pause could last several months. “Ultimately, I think inflation is strongly driven by wage cost developments,” he explains. ‘In the US, wage growth can be seen to be moderating somewhat, but still quite high. Higher than is compatible with the two per cent inflation target.’
There is, however, a relaxation in the labor market, according to De Jong. So he thinks the Fed is mostly waiting to see if wage increases will decrease as well. “If that happens, they will certainly be willing to wait a few months. Perhaps we will have the latest interest rate hike behind us after all. I don’t think so, but it could be.
Source: BNR
Sharon Rock is an author and journalist who writes for 24 News Globe. She has a passion for learning about different cultures and understanding the complexities of the world. With a talent for explaining complex global issues in an accessible and engaging way, Sharon has become a respected voice in the field of world news journalism.
