Tracking inflation’s progress
From Matt Stiles and Byron Manley
Latest inflation report is good news for consumers
While the better-than-expected CPI inflation report won’t suddenly impact consumers who have been suffering through decades-high inflation for the last couple of years, it’s certainly a good start.
“Will consumers suddenly feel relieved from the burden of elevated prices? No,” wrote Mark Hamrick, senior economic analyst, in a note Wednesday morning.
“But they are supported by a still robust job market that supports employment and wage gains rising above the recent pace of inflation.”
Wall Street reacts to the May inflation report
Here’s what Wall Street has to say about the May Consumer Price Index:
- “There’s a clear path to a soft landing,” said Skyler Weinand, chief investment officer at Regan Capital.
- “At this stage, there is no greater goal than Fed credibility to keep inflation expectations anchored, economic activity robust and financial markets friendly. Until greater disinflation evidence is seen both in breadth and depth, today’s softness is supportive of a preemptive cut rather than a pivot in Fed policy towards accommodation,” said Ashwin Alankar, head of global asset allocation at Janus Henderson Investors.
- “While September may be on the table, today would have had to be the first of a handful of inflation data prints that went right, which it did. It does remain challenging, however for inflation to cool with the backdrop of the summer’s heat,” said Lindsay Rosner, head of multi-sector investing within Goldman Sachs Asset Management.
Dow futures jump 244 points after better-than-expected May inflation data
Stock futures climbed higher on Wednesday morning after fresh data revealed inflation cooled more than forecasted last month.
Futures tied to the Dow Jones Industrial Average rose 244 points, or 0.6%. S&P 500 futures added 0.7% and Nasdaq-100 futures gained 0.9%.
Consumer prices rose 3.3% from a year earlier, according to the Bureau of Labor Statistics. Prices were flat from the month before. Economists had expected a 0.1% monthly increase and gain of 3.4% from the prior year, according to FactSet consensus estimates.
Consumer price inflation slowed more than expected in May
Inflation cooled in May, new data showed Wednesday, delivering a welcome piece of news just hours before the Federal Reserve is set to make its latest announcement on interest rates.
Consumer prices rose 3.3% from a year earlier, slowing from April’s 3.4% rate, according to the Bureau of Labor Statistics’ latest Consumer Price Index report released Wednesday.
On a monthly basis, prices were flat, a slower pace from April’s 0.3% gain.
It’s the first time since July 2022 that CPI did not rise on a monthly basis.
Economists were expecting a 0.1% monthly increase and an annual gain of 3.4%, according to FactSet consensus estimates.
Helping to slow inflation in May were falling gas prices, which dropped 3.6% from April. They’re still up 2.2% for the year. Grocery prices were flat and overall food prices went up by 0.1%, lifted by a slight acceleration in inflation at the restaurant level.
However, shelter inflation more than offset the decline in gasoline, rising 0.4% for the fourth month in a row, underscoring the pressure Americans are feeling from housing-related expenses.
Excluding gas and food, categories that tend to be volatile, the closely watched “core” measure rose just 0.2% for the month (its slowest pace since October of last year), and its annual rate dropped to 3.4%, setting a fresh three-year low.
Stock futures rise as investors await key inflation report and Fed rate decision
US stock futures edged higher Wednesday morning as Wall Street looked to the May Consumer Price Index and the Federal Reserve’s latest policy decision.
Futures tied to the Dow Jones Industrial Average rose 36 points, or 0.09%. S&P 500 futures gained 0.1% and Nasdaq-100 futures added 0.1%.
Investors will parse the inflation report first at 8:30 am ET. The Fed releases its rate decision, expected to be a pause, at 2 pm ET.
Wall Street’s facing an economic double-whammy this week
Wall Street will be parsing the May Consumer Price Index report just hours before the Federal Reserve is slated to announce its monetary policy update.
The CPI report and Fed’s policy meeting have fallen on the same day just seven times since 2014, according to Bank of America.
Despite the rare event, it’s unlikely the stock market will swing widely because of the economic two-fer, some investors say.
“The things that could drive volatility higher would be if Chair Powell was to say something unexpected; I think that is of a very low probability,” wrote Dave Sekera, chief US market strategist at Morningstar, in a Monday note. But if “inflation metrics come out much higher than expected, that could lead to a small sell-off. How much the market sells off would depend on how much above consensus inflation is running.”
The central bank is widely expected to keep rates on hold this month. Some analysts say upcoming CPI data won’t alter the Fed’s June decision, unless it shows a huge deceleration or acceleration in inflation. But the metric will still help guide the Fed’s decisions during the second half of the year.
“The number of rate cuts the Fed will actually be able to deliver this year will depend heavily on the outlook for inflation; if it remains stickier, investors may want to temper their expectations for easing for 2024,” wrote Glenmede’s investment strategy team in a Monday note.
What investors expect from the inflation report and Fed meeting
Here’s what Wall Street expects from the latest Consumer Price Index report and the Federal Reserve’s policy meeting.
- “It is likely that we will see a mild deceleration in core CPI. At the same time, we note that inflation probably sits nowhere near the Fed’s 2% guidance, which should reinforce the likelihood that the [Federal Open Market Committee] stays on hold this month,” said Naomi Fink, global strategist at Nikko Asset Management.
- “If core inflation eases in line with expectations, that will enable investors to breathe a sigh of relief. But, if core inflation comes in even slightly hotter than expected, ‘higher for longer’ concerns might resurface,” said BeiChen Lin, investment strategist at Russell Investments.
- “We estimate [the neutral interest rate] has moved higher since the Great Recession. We expect the Fed to recognize this in their [Summary of Economic Projections], with dots reflecting just one rate cut in 2024 and an upward revision in inflation projections,” said Roger Aliaga-Diaz, chief Americas economist at Vanguard.
- “The delay in rate cuts will continue to strain lower- and middle-income consumers,” said Stephen Rich, CEO of Mutual of America Capital Management. “Negative indicators are starting to show, including the rise in subprime auto loans and credit card delinquencies. These trends could signal trouble ahead for many Americans, even as the economy generally remains strong.”
- “The dot plot will likely show a reduction in the median number of cuts expected in 2024, with a drop to 2 cuts being relatively dovish and a drop to just one sending a more hawkish signal,” said Kristy Akullian, head of iShares investment strategy, Americas, at BlackRock.
What to expect from today’s inflation report
The Consumer Price Index for May isn’t expected to show a significant slowdown in inflation, but it could be an additional piece of evidence showing that the heat seen in the first quarter has subsided.
April’s report showed a cooler read on inflation than the hotter-than-expected prints in the three preceding months and sent US stock indexes to record highs as a result.
For May, economists are expecting that prices grew a mere 0.1% from April (thanks mostly to falling gas prices and tame food prices) but that the annual rate would stay steady at 3.4%, according to FactSet consensus estimates.
If prices were to advance 0.1% from April, it would mark the slowest monthly gain since October 2023.
Core CPI, which is looked to as a measure of underlying inflation as it strips out the volatile food and energy categories, is expected to increase at 0.3% for the second month in a row. If so, that would bring annual core inflation from 3.6% to 3.5%, setting a fresh three-year low.
Shelter inflation remains the biggest hurdle to CPI slowing, and it remains to be seen when the moderation in market-rate rents will be reflected in the critical inflation gauge.
All in all, the May CPI data should show some “encouraging evidence” of moderating inflation, but it won’t be definitive enough to green light a rate cut before September, noted Scott Anderson, chief economist with BMO.
