Soft core US inflation gives Fed breathing room despite 4.2% headline
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The news: US consumer prices rose 4.2% in the 12 months to May, the largest increase since April 2023, data from the Labor Department showed.
The numbers: Energy accounted for more than 60% of the 0.5% monthly rise, with gasoline up 7% on the month and 40.5% on the year.
Core prices, which exclude food and energy, rose 0.2% from April, below the 0.3% economists polled by Bloomberg had forecast, and 2.9% on the year.
A separate Labor Department report showed inflation-adjusted hourly earnings fell 0.7% on the year, a second consecutive monthly decline.
After the report, traders maintained bets the Fed will raise rates by December, with pricing implying about a 60% chance of a hike by October. It comes as the central bank is expected to hold its benchmark rate at 3.50%-3.75% at next week’s meeting, its first under new chairman Kevin Warsh, Reuters reported.
What they said: “The longer the Middle East conflict persists, the broader and more persistent inflationary pressures are likely to become,” EY-Parthenon chief economist Gregory Daco said in a note.
RSM chief economist Joe Brusuelas told The Wall Street Journal inflation was “approaching the peak” on a year-over-year basis.
