The United States experienced a slowdown in price pressures in May, primarily due to a decrease in gasoline prices.
As a result, the CPI only advanced by 0.1% on a month-to- month basis, which was in line with expectations. When excluding food and energy, the core CPI increased by 0.4%, also meeting expectations.
This rise was driven by higher shelter prices and a significant increase in used car prices. Of particular interest was the Federal Reserve’s preferred price measurement, which focuses on prices linked to underlying demand.
The decline in certain discretionary service sectors suggests that past rate hikes may have successfully curbed demand, providing some reassurance to the Fed.
Economic forecast — Today’s inflation data showed tame advances in enough key categories to justify a pause from the Fed tomorrow.
Although the annual core inflation pace will continue to cool in the summer months, helped by base effects, the ongoing strength in the labour market suggests that 2.0% inflation won’t be attainable on a sustained basis, and we could see two final 25bp rate hikes in Q3 from the Fed as a result.
Bond yields fell, and the greenback depreciated ahead of the release, with both remaining around those levels following the data release, as this report wasn’t seen as strong enough to bring a Fed hike as early as tomorrow.
Market commentary and analysis from Luca Santos, currency analyst at ACY Securities
