The inflation report was released today and indicated that all-items inflation increased by 0.1% in May, in line with expectations. Investors expect that this inflation report could finally convince Federal Reserve officials to hit the brakes on interest rate hikes after consumers have been bedeviled by rising inflation for the past two years.
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On an annual basis, inflation was up by 4%, meeting economists’ forecasts and its lowest level in the past two years. Excluding the food and energy components, the consumer price index (CPI) rose by 0.4% in May, the same as in April, and again meeting expectations. On an annual basis, CPI, excluding food and energy ticked higher by 5.3%, meeting estimates. Home prices which comprise 33% of the CPI, were the largest contributor to the rise in inflation and rose by 0.6% in May as compared to 0.4% in April but the Fed expects these prices to decline later this year.
When it comes to airfare and lodging costs, these were on a rebound in May and were up by 0.8%. Used vehicle prices continued to be at the same level as in April at 4.4% but declined by 4.2% on an annual basis.
While inflation has declined, it is still far off from the Fed’s target inflation rate of 2%. Core inflation continued to be much stronger than headline inflation even as it takes into account fewer variables and does not include food and energy.
According to a CNBC report, citing CME Group data, traders expect the Fed to hit a pause on the rate hike at its FOMC meeting later this week with one final rate increase likely in July before a pause that is likely to last into early next year.
