U.S. May CPI Rises to 4.2%, Core Inflation Below Forecast Eases Fed Rate Hike Concerns

TradingKey - Data released by the U.S. Bureau of Labor Statistics on Wednesday showed that the U.S. CPI rose 0.5% month-on-month in May, compared to the previous value of 0.6%; it rose 4.2% year-over-year, higher than April's 3.8%, indicating that inflationary pressures continue to climb. Core CPI, which excludes food and energy, rose 0.2% month-on-month, lower than April's 0.4%; core CPI rose 2.9% year-over-year, heating up slightly from the previous 2.8%.

From a structural perspective, this inflation rebound was primarily driven by energy prices. The energy index rose 3.9% month-on-month in May, marking a significant upward trend for the second consecutive month and contributing over 60% of the overall monthly CPI increase. Notably, gasoline prices rose 7.0% month-on-month and surged 40.5% year-over-year, becoming a core variable driving up the cost of living. Food prices rose 0.2% month-on-month, with food at home up 0.1% and food away from home up 0.3%.

However, core inflation was relatively moderate, easing some market concerns about the energy shock spreading broadly to service and commodity prices. In May, the shelter index rose 0.3% month-on-month, with owners' equivalent rent up 0.3% and rent up 0.4%; airline fares rose 2.7%, while prices for communication, medical care, personal care, and recreation also increased. Meanwhile, motor vehicle insurance fell 1.7%, household furnishings and operations prices fell 0.6%, and new vehicle prices fell 0.3%, exerting a drag on core CPI.

For the Federal Reserve, this data is insufficient to support a short-term shift toward easing, but it also does not significantly reinforce the necessity for an immediate rate hike. According to the CME FedWatch Tool, the probabilities of rate cuts and hikes by year-end remained largely unchanged. The rise in headline inflation will keep the Fed cautious, especially given the strong May non-farm payrolls data; policymakers are more likely to wait for more inflation and employment data to confirm whether price pressures are persistent.

Following the data release, the US Dollar Index dropped sharply below 100 in the short term; gold ( XAUUSD) simultaneously staged a rapid short-term rebound of nearly $30; futures for the three major U.S. stock indices narrowed their losses, with Dow futures down 0.4%, S&P 500 futures down 0.38%, and Nasdaq futures down 0.63%, after the three major index futures had earlier dropped by more than 1%.