US Markets
Wednesday, June 12th, 2024 2:45 pm EDT
Key Points
- The Consumer Price Index (CPI) for May showed no monthly increase, indicating a slight easing of inflation, but still recorded a 3.3% year-over-year rise. Core CPI, excluding food and energy, rose by 0.2% monthly and 3.4% annually, both below expectations.
- Despite overall easing in inflation, shelter costs increased by 0.4% monthly and 5.4% annually, remaining a significant factor in the CPI and a challenge for the Federal Reserve. Energy prices fell by 2%, with gas prices dropping 3.6%, and food prices saw a modest 0.1% increase.
- Following the CPI report, stock market futures rose and Treasury yields fell, with the market anticipating potential Federal Reserve rate cuts. Futures traders increased the probability of a rate cut in September to 73% and another cut in December to 72%, although Fed officials stress the need for sustained positive inflation data before easing policy.
In May, the Consumer Price Index (CPI) showed no increase, indicating a slight easing of inflationary pressures on the U.S. economy, as reported by the Labor Department. The CPI, which measures the cost of a basket of goods and services, remained flat for the month, though it rose by 3.3% year-over-year. This was slightly below economists’ expectations, which had forecasted a 0.1% monthly rise and a 3.4% annual increase. In April, the CPI had increased by 0.3% monthly and 3.3% annually. Excluding volatile food and energy prices, the core CPI saw a 0.2% monthly increase and a 3.4% annual rise, also below the expected figures of 0.3% and 3.5%, respectively.
Following the CPI report, stock market futures improved, and Treasury yields fell. The Dow Jones Industrial Average climbed by approximately 250 points in morning trading, while the 10-year Treasury yield dropped to 4.27%, a decrease of nearly 0.14 percentage points. Despite the overall easing in inflation, shelter costs continued to rise, with a 0.4% monthly increase and a 5.4% year-over-year increase. Housing costs remain a significant factor in the CPI and a challenge for the Federal Reserve in its efforts to control inflation. Conversely, the energy index saw a 2% decline, with gas prices falling by 3.6%, and food prices rose by just 0.1%. Motor vehicle insurance costs, another notable inflation component, dropped by 0.1% monthly but remained up over 20% annually.
Economist Robert Frick from Navy Federal Credit Union highlighted the positive surprise in both headline and core inflation figures, noting relief at the gas pump but persistent challenges with rising shelter costs. The CPI data comes at a critical time as the Federal Reserve considers its next steps in monetary policy, heavily influenced by inflation trends. The Federal Open Market Committee (FOMC) is expected to conclude its two-day policy meeting without changing the current benchmark overnight borrowing rate, which remains targeted at 5.25%-5.50%. However, market participants are keen to glean insights into the Fed’s future actions.
Post-CPI release, futures traders increased the likelihood of a Fed rate cut in September, the first since the early pandemic days, with market-implied probabilities jumping to 73% from 53% the previous day. Expectations for a second cut in December also rose to about 72%. Nonetheless, economists like Joseph LaVorgna from SMBC Nikko Securities caution that several more months of favorable inflation data are needed before the Fed might consider easing rates.
Persistent inflation has kept the Fed from adjusting rates since the last hike in July 2023. During the March meeting, FOMC members projected up to three rate cuts this year, totaling 0.75 percentage points, but these projections might be revised down to one or two cuts. The committee will also update its forecasts for GDP growth, inflation, and unemployment, potentially influenced by the latest CPI figures. Although the Fed primarily focuses on the Commerce Department’s personal consumption expenditures price index as its main inflation gauge, the CPI data remains a significant part of their overall assessment.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/06/12/cpi-report-june-inflation.html
