Hopes for cost of living respite as US inflation dives 

US inflation plunged to its lowest level in nearly two years last month – adding to hopes that the end of the cost of living squeeze gripping major economies could be in sight.

Consumer price index (CPI) inflation in the world’s biggest economy fell to 5 per cent in March, according to official figures.

It is likely to add to pressure on America’s US Federal Reserve to pause the aggressive interest rate hikes it has enacted as it battles to end the price spiral.

Inflation was down from 6 per cent in February and the lowest since May 2021. It was slightly lower than the 5.2 per cent pencilled in by economists.

However it remains well above the Fed’s 2 per cent target while a ‘core’ measure of prices growth – stripping out volatile food and energy costs – actually rose from 5.5 per cent to 5.6 per cent.

Rate relief: US inflation dropped to 5% in March which will likely add to pressure on America’s Federal Reserve to pause the aggressive series of interest rate hikes it has enacted

Gita Gopinath, first deputy managing director at the International Monetary Fund, said the US central bank had been ‘correct about keeping its eye on inflation’ as it hiked rates over recent months.

But she told news channel CNBC it was a ‘very difficult time’ for rate-setters as they battle inflation while at the same time ‘not having a big stress event’.

US inflation peaked at a four-decade high of 9.1pc last summer but has been tamed more quickly than in Britain, where it remains in double-digits.

In America, the Fed has acted aggressively to battle soaring prices by bringing interest rates up by 4.5 percentage points in a year, causing pain for borrowers as monthly repayments climb.

Rate-setters in Washington will meet at the start of next month. 

Markets think the Fed will go for another quarter-point rise then but the latest data beefed up bets that it will change course in the summer and start cutting interest rates by the end of the year.

Complicating the Fed’s thinking is the possibility that the recent turmoil in the banking sector could be exacerbated by more hikes, adding to strains on the wider economy.

The dollar slipped back on the latest inflation figures while Wall Street stock indices made tentative gains, which proved short-lived as markets digested the data.

Kieran Clancy, senior US economist at Pantheon Macroeconomics, said: ‘This report will not prevent the Fed from hiking in May. 

Officials have made clear they want to see a run of slowing increases.’

He suggested resolve could be tested if it sees evidence of weakness in the jobs market. 

‘We think that’s imminent, so the next few months are likely to bring a serious shift in the Fed’s stance,’ he added.

This post first appeared on Dailymail.co.uk