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Inflation held its position in May, advancing slightly ahead after a brief retreat only a month earlier.
On Thursday, the Commerce Department released its latest reading for the Personal Consumption Expenditure (PCE) index that showed prices rose by 6.3% in May on a year-by-year basis. In a sign of inflation’s present stubbornness, this was the same amount that it advanced by in April, a month that saw inflation decelerate slightly but down slightly from March’s 6.6%, the highest level seen by the U.S. economy since January 1982, according to CNBC.
When more volatile food and energy prices are excluded from among its basket of goods, the PCE index found that prices rose at a slightly slower rate of 4.7% compared to 4.9% witnessed a month earlier.
This reading adds to a complicated picture of the state of inflation in the U.S. In May, the readings for the Consumer Price Index (CPI) showed prices rose by around 8% for consumers while costs for producers under the Producer Price Index (PPI) shot up by about 10.8%.
Driven primarily by higher commodity prices, especially gas prices, these increases are continuing to exact their toll on American consumers. Consumers remain sharply pessimistic about the state of the economy, a sentiment that has been reinforced by inflation’s persistence and growth in the last year.
The Fed, which watches PCE data closely, will likely perceive this as more evidence that it should maintain its presently hawkish posture on interest rates.
On June 15, the Fed raised rates by three-quarters of a percentage point in the biggest hike since 1994. The central bank has made clear that it will continue to raise rates and committed itself to making a sustained reduction in inflation a priority.
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