The latest monthly price data set to be released by the government on Wednesday is expected to show that U.S. consumer inflation in May was likely tempered by the decrease in gas prices. However, a key focus will be on the core inflation index, which excludes volatile food and energy costs.
Economists anticipate that core prices may have risen by 0.3% from April to May, consistent with the previous month. On a year-over-year basis, core inflation is projected to have decreased from 3.6% to 3.5%.
While overall inflation is moderating, essential expenses such as groceries, rent, and healthcare have significantly increased over the past three years, contributing to public dissatisfaction and potentially impacting President Joe Biden's re-election prospects.
The Federal Reserve is closely monitoring inflation reports to gauge the effectiveness of its measures against rising prices. A 0.3% increase in core consumer prices is considered high in the long term and could be viewed as a setback to the Fed's 2% annual inflation target.
Following the upcoming policy meeting, the Fed is expected to maintain its benchmark interest rate at a 23-year high of approximately 5.3%. Lower gas prices are believed to have driven overall inflation down to 0.1% from April to May, the lowest figure since October.
The Fed's challenge lies in managing inflation through interest rate adjustments without triggering a recession. Persistently high inflation earlier this year delayed anticipated rate cuts, posing a threat to achieving a 'soft landing' for the economy.
Despite some signs of cooling inflation, such as declining gas prices and price reductions by major retailers and restaurants, uncertainties remain regarding the Fed's future rate policies and the economy's trajectory.
