The US Consumer Price Index (CPI) continued to soar, with today’s report showing that inflation rose to 4.2% in May on a year-to-year basis. This was up sharply from 3.8% in April and matched the market estimate. Inflation has now hit its highest level since April 2023.
On a monthly basis, CPI eased slightly to 0.5%, down from 0.6% in April and matching the market estimate.
Core CPI, which excludes food and energy and is considered a better gauge of inflation trends, also rose in May, but not as dramatically as headline CPI. The core rate climbed 2.9% year-on-year, up from 2.8% in April and in line with the market estimate. Monthly, core CPI dipped to 0.2%, down from 0.4% in April and below the market estimate of 0.3%.
Energy Prices Fuel CPI Surge
Headline inflation rose for a third consecutive month, and the culprit is clearly rising energy prices, as the Iran conflict has kept oil prices at high levels. The US Bureau of Labor Statistics reported that the energy index accounted for over 60% of the monthly inflation increase.
US President Trump continues to insist that an agreement with Iran is imminent, although Iran has not shared Trump’s optimism. Investors have shifted their focus from the Middle East as US inflation continues to heat up. At the current level of 4.2%, inflation is now more than double the Fed’s target of 2.%. This has raised expectations that the Federal Reserve will maintain interests higher for longer, which should help the dollar continue its recent gains against the major currencies.
The US dollar has struggled in recent months but has shown improvement in June, posting gains against all of the major currencies, including a 2.45% gain against the AUD/USD currency pair. Last week’s stronger-than-expected nonfarm payrolls report and today’s hot inflation report have reduced the likelihood of an interest rate cut in the short term, making the US currency more attractive to investors.
US Dollar Calm, Stock Market Down After Inflation Report
The US dollar is showing little movement against the major pairs on Wednesday, although that could change during the day because of the strong inflation report.
The GBP/USD currency pair is up 0.14%, trading at 1.3397.
The US stock markets have just opened and already have posted losses in reaction to the inflation report.
The Nasdaq 100 Index has dropped by 137.78 points (0.47%) and is trading at 28,946.72.
The S&P 500 Index is down 27.07 points (0.37%) at 7359.58.
We hope you enjoyed reading this analysis of the latest US CPI data. If you want to trade it, check out our list of the best Forex brokers.