Sticky Inflation May Have Peaked with Oil Collapse, but Core Remains Firm
Key Questions
What were the latest CPI and PCE inflation readings?
May CPI showed headline at 4.2% YoY, the first above 4% since 2023, with core at 2.9%. May PCE hit 4.1%, the highest in three years, while PPI reached 6.5%.
How has energy contributed to recent inflation?
Energy prices surged 23.5% YoY with gas up 40.5%, driving the headline increase. The Iran peace deal and oil drop to $80 may signal a peak in energy-driven inflation.
What does the Fed's hawkish dot plot imply for inflation?
Despite potential energy relief, the dot plot signals ongoing concern over core stickiness. Goldman Sachs projects core PCE remaining above 3% all year.
How are real wages and consumer spending affected?
Real wages fell for the second straight month amid high inflation. Consumers still boosted spending despite the price pressures shown in the data.
What role is AI playing in inflation trends?
The AI boom and data center expansion are expected to support growth while keeping core inflation firm. This adds to price pressures in services and related sectors.
What was the ISM Services prices subindex reading?
The ISM Services prices subindex reached 71.3, confirming persistent price stickiness in the services sector. This aligns with broader concerns about underlying inflation.
How might tariffs influence future inflation?
US tariffs could return to previous levels if Section 301 probes succeed, according to Bessent. This potential policy shift adds upside risk to inflation outlooks.
What upcoming data will test the inflation outlook?
Tomorrow's PCE data will provide the next key test for inflation trends. Strong jobs data and inflation readings are keeping pressure on the Fed's policy decisions.
May CPI headline 4.2% (first time above 4% since 2023), core 2.9% YoY. May PCE confirmed at 4.1% headline, 3.4% core—core hit 3-year high. Energy surged 23.5% YoY, gas up 40.5%. PPI wholesale inflation hit 6.5% in May. The Iran peace deal and oil crash to $80 could mark the peak of energy-driven inflation, but core services inflation remains sticky (ex-housing 3.1% YoY). AI data center boom adds structural core inflation pressure. Goldman Sachs sees core PCE stuck above 3% all year. ISM Services prices subindex at 71.3 confirms stickiness. Hot PCE data validates the Fed's hawkish stance.