US CPI data for May, released by the BLS this morning, appear to set the stage for the Fed to pause any further tightening in policy when the FOMC announces its rate decision tomorrow (Wednesday). On a seasonally adjusted basis, headline CPI rose a less-than-expected 0.1 percent in the month, compared to 0.4 percent in April. That lowered the year-on-year increase from 4.9 percent in the previous month to 4.0 percent in May, the lowest figure since March 2021.
The FOMC will be well aware of the impact of the base effect on this latest result. While the 0.1 percent month-on-month increase is encouraging in itself, the sharp deceleration in the more closely followed yearly data mainly resulted from another of last year's outsized monthly gains falling out of the calculation. The fact that year-on-year CPI peaked in June 2022, at 9.1 percent, means that the base effect will only exert a downward influence for one more month. Consequently getting headline CPI the rest of the way down to the 2 percent target will be rather more challenging.
The FOMC will also take note of the slower progress in reducing core inflation. CPI less food and energy rose 0.4 percent in May, identical to the increases posted in the two preceding months. That left the year-on-year increase at 5.3 percent. While this is still way too high for the Fed's comfort, the market's firm expectation that the FOMC will leave rates unchanged, at least for this one meeting, is likely to prove accurate.
No comments:
Post a Comment