US inflation rose less than the 0.3% expected in May, according to the latest consumer prices index (CPI) figures released this week by the US Labor Department. The headline CPI rose by 0.2%, taking the year-on-year rate to 1.1%.
Core inflation, which strips out food and energy price changes, began to accelerate again after slowing in March and April. The annual rate rose back to 2.2% after dropping to 2.1% in April and any further increases in its rate will take it back to pre-GFC levels.
The index is based on prices of food, clothing, shelter, fuels, transportation fares, charges for medical services, medicines, and other goods and services bought for day-to-day living. The largest price increases were in the fuels and rents segments.
AMP Capital’s Shane Oliver said the figures were consistent with a core PCE figure of between 1.6% and 1.7%. Core PCE (underlying personal consumption expenditure) is known to be the FOMC’s preferred measure of inflation and thus useful as an indicator of FOMC’s policy leanings.
In a week in which markets increasingly focussed on the upcoming “Brexit” vote, US CPI figures registered on few radars, especially as the numbers were not far from those which were expected. On the day, US 2 year bond yields rose 3bps to 0.69% while 10 year bond yields rose 3bps to 1.58%.
