US CPI Reaches Lowest Level in Two Years: Annual Rate at 4% in May, Monthly Increase of 0.1%

In a report released on Tuesday, the Labor Department announced that the inflation rate in the United States had cooled in May, reaching its lowest annual rate in about two years. The consumer price index, which measures changes in the prices of a wide range of goods and services, increased by a mere 0.1% for the month, bringing the annual level down to 4%. This 12-month increase marks the smallest since March 2021 when inflation began to rise, ultimately reaching its highest point in 41 years.

Following the release of the CPI report, Bitcoin experienced a boost, increasing by 0.7% to a new value of $26,100.

While the overall inflation rate seems to have moderated, excluding volatile food and energy prices, the situation appears less optimistic. Core inflation, which excludes these volatile components, rose by 0.4% for the month and remained up by 5.3% from a year ago. These numbers indicate that while price pressures have eased somewhat, consumers are still grappling with inflationary challenges. Notably, all these figures aligned perfectly with the Dow Jones consensus estimates.

Source: CNBC

A 3.6% decline in energy prices played a significant role in keeping the consumer price index gain in check for the month. Additionally, food prices saw a modest increase of just 0.2%. However, the most significant contributor to the overall CPI reading was the 0.6% rise in shelter prices. With housing-related costs accounting for approximately one-third of the index’s weighting, this increase had a notable impact.

Other key findings from the report indicate that used vehicle prices continued their upward trajectory, rising by 4.4% in May, mirroring the increase seen in April. Transportation services also experienced an uptick, with a 0.8% rise.

Interestingly, despite the significance of this report and its anticipated influence on the Federal Reserve’s decision regarding interest rates at this week’s meeting, market reactions were relatively muted. Stock market futures showed slight positivity, while Treasury yields experienced a sharp decline. Notably, pricing in the fed funds market underwent a notable shift, with traders now indicating a nearly 100% probability that the Fed will not raise benchmark rates when the meeting concludes on Wednesday.

These latest inflation figures come at a critical juncture for the Federal Reserve as it assesses the state of the economy and determines the appropriate monetary policy. The central bank faces the delicate task of balancing its dual mandate of maintaining stable prices and promoting maximum employment. The recent easing of the inflation rate might offer some respite, but the persistent challenges faced by consumers underscore the need for continued vigilance.

As the Federal Reserve meets to discuss its policy decisions, the outcome will have implications for businesses, investors, and individuals alike. Market participants will be closely monitoring the central bank’s stance on interest rates and its outlook on inflation as they position themselves for the future.

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