In this morning’s data, the headline Consumer Price Index (CPI) increased 0.1% in May, slightly less than expected and is one tenth less than last month’s increase. On an annual basis it grew 2.4%, as expected. The core rate, which excludes prices for food and energy, increased 0.1% in May, also less than expected and one tenth lower than last month’s increase. It grew 2.8% on an annual basis, the same as the previous month.
Looking at the individual categories, monthly prices for Food at Home, up 0.3%, Fuel Oil, up 0.9%, and Medical Care Commodities, up 0.6%, were relatively strong while monthly prices for Gasoline, down -2.6%, and Used Cars and Trucks, down -0.5%, were relatively weak. Prices for Shelter were up 0.3%, the same as the previous month.
Overall, both the headline and core measures of CPI were less than expected in May. Still, the annual figure for the core rate remains above the Federal Reserve’s target. Price increases of food at home and medical care commodities were offset by drops in prices for gasoline and used cars and trucks. Meanwhile, the labor market is intact, albeit moderating according to last week’s payroll report and first quarter company earnings reports have been mostly positive.
The Federal Reserve is likely to remain on hold with their policy, considering annual core inflation, tariff uncertainty, and a labor market that remains intact. The timing of tariff resolutions and how well consumers maintain their spending amidst that process will be key factors for the economy and markets in the months ahead.
In all, the 10-year US treasury yield ticks lower following the report and equity futures are now higher as we head into the market open.
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