May Headline CPI Data Highest Since April 2023
Pre-market futures are in the red at this hour, but improving off early-morning lows directly following the latest inflation numbers for May. The Dow is currently -262 points (-374 points ahead of the print), -34 points on the S&P 500 (-59 before) and -204 on the Nasdaq (-387 points prior to the CPI report).
CPI Meets Expectations, Inflation Rate: +4.2%
The good news for this morning’s Consumer Price Index (CPI) is that they matched expectations exactly, nearly everywhere across the board. Headline CPI month over month reached +0.5%, as projected — down for the second-straight month (+0.9% in March, +0.6% for April). Core CPI month over month was better than expected at +0.2%, cutting in half the +0.4% reported in April’s numbers.
Year-over-year CPI is also known as the “Inflation Rate,” and here we see another figure matching predictions: +4.2%. To help illustrate the level of food and energy prices affecting these numbers, core CPI came in at +2.9%, also in-line with estimates. These levels tick up from +3.8% on the March Inflation Rate and +2.8% on core.
The bad news is that we can clearly see inflation once again putting pressure on the U.S. economy. An Inflation Rate of +4.2% hasn’t been this high since April of 2023, when higher Fed funds rates were working inflation metrics down from June of 2022’s +9.1% (which had been the highest in four decades). It’s also more than double what the inflation goal was for the Jerome Powell-led Fed: +2.0%.
Of course, new Fed Chair Kevin Warsh will almost certainly be pushing a different narrative as his first FOMC meeting concludes a week from today. But at three-year highs on inflation metrics, it will be a very hard sell for Warsh to get the Fed to start cutting interest rates anytime soon.
In fact, without a meaningful resolution in the Iran war to re-open the Strait of Hormuz, inflationary pressures will remain on the U.S. economy — likely spreading from pure energy prices to food transportation and the like. In short, there appear to only be upward pressures on inflation at present; we don’t expect a +4.2% Inflation Rate to represent the peak of the current cycle.
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This article originally published on Zacks Investment Research (zacks.com).
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