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U.S. Inflation Shows Signs of Cooling Down, Increases Prospect of Fed Rate Cut

The U.S. inflation is showing further signs of cooling down according to the latest data released by Commerce Department’s Bureau of Economic Analysis.

The personal consumption expenditures (PCE) price index, which the Federal Reserve uses as its preferred inflation indicator, remained flat in May while coming down to 2.6% on year-to-year basis. This marked the first time since November that the PCE price index remained unchanged.

A significant contributor to (PCE) price index remaining unchanged in May were the lower prices of energy, which came down 3.4%, and goods, which were cheaper by 0.4%. Food prices increased 0.1%.

The core PCE price index, which excludes the prices of energy and food from the equation, was also encouraging. It saw a 0.1% uptick and 2.6% increase on a year-on-year basis, compared to a 0.3% increase the month before and 2.8% on an annual basis.

According to experts, the latest data increases the prospect of the Fed cutting interest rates at its September meeting.

“This was a very Fed-friendly report that should keep the September rate cut in play, while at the same time increasing investor confidence that moderate economic growth can be maintained even as rates stay higher for longer,” said Scott Anderson, chief U.S. economist at BMO Capital Markets.

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