U.S. Consumer Price Index (May 2024)

Inflationary pressures cool more than expected in May 

• The Consumer Price Index (CPI) was flat in May, coming in below the consensus forecast calling for a modest gain of 0.1% month-on-month (m/m). On a twelve-month basis, CPI edged lower by 0.1 percentage points to 3.3%.
• Energy prices dipped by 2.0% last month, largely due to lower prices at the pump (-3.5% m/m). Food prices ticked higher by 0.1% m/m, and are up 2.1% y/y.
• Excluding food & energy, core prices rose a 'soft' 0.2% m/m (0.16% m/m unrounded), also coming in a tick below the consensus forecast and marking a notable deceleration from April's 0.28% m/m gain. Relative to May 2023, core inflation fell to 3.4%. 
• Core services prices rose a very subdued 0.2% m/m – the weakest monthly gain since December 2021 – and are up 5.3% on a twelve-month basis. Higher shelter costs (+0.4% m/m) were entirely responsible for last month's gain in services prices.
• Meanwhile, non-housing services (i.e., 'supercore') inflation was flat on the month, thanks to a sharp drop in airfares and some pullback in recreational services. Vehicle insurance costs were also lower on the month, but are still up a sizeable 20% y/y. The three-month annualized rate of change on supercore dipped to 4.5% (from 6.4% the month prior). 
• Goods prices were flat on the month, as a pullback in education & communication goods, apparel and new vehicle prices were largely offset by an uptick in used vehicles and medical goods. . 

Key Implications

• The May CPI reading delivered a pleasant surprise, coming in handily below the consensus forecast. Importantly, last month's deceleration offers further support that the flare-up in inflationary pressures earlier this year has subsided. The three-month annualized rate of change on core dipped to 3.3% – the slowest pace of growth since December 2023. 
• The Fed is on tap to make its next interest rate announcement at 2pm ET. While rates are expected to be held steady, the focus will be on the release of the updated Summary of Economic Projections (SEP) as well as Powell’s press conference (starting at 2:30 ET). The March SEP indicated 75 basis points of easing by year-end, but with inflation still elevated and the economy still adding jobs at an impressive rate, the FOMC’s refreshed projections will likely show just 25-50bps of easing by the end of this year. Stay tuned! 

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