In this morning’s data, the Consumer Price Index (CPI) increased 0.5% in May, as expected. On an annual basis, it grew 4.2%, also as expected and markedly higher than the previous month’s annual increase. The core rate, which excludes prices for food and energy, increased 0.2% in May, slightly less than expected, and less than the increase in the previous month. The core rate grew 2.9% on an annual basis, as expected and is one tenth higher than the previous month’s annual increase.
Looking at the individual categories, monthly prices for Gasoline, up 7.0%, and Fuel Oil, up 3.8%, were relatively strong, while monthly prices for Medical Care Commodities, down -0.7%, and Transportation Services, down -0.6%, were relatively weak. Prices for Shelter were up 0.3%, lower than the previous month’s increase.
Overall, inflation measures remain elevated in May, driven mostly by higher energy prices. The headline CPI increased by more than 4% annually, given higher prices for gasoline and fuel oil. Price decreases in medical care commodities and transportation were not enough to offset the increase. The monthly increase in the core rate was slightly less than expected in May, but the annual increase is higher than the previous month.
Inflation remains a concern as the annual level for the core rate is still well above the 2% target stated by the Federal Reserve. Higher oil prices have a higher chance to feed into other areas of the economy the longer the conflict with Iran continues. As a result, the timing and substance of a resolution to the Iran conflict will be a key factor for the economy and markets in the coming weeks.
In all, the 10-year US treasury yield ticks lower following the report and equity futures are lower as we head into the market open.
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