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Crucial Wednesday: Inflation report and FOMC rate decision
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US May CPI Preview: Will Eased Inflation Justify the Viability of a Third-Quarter Rate Cut?

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Movers and Shakers joined discussion · Jun 11 08:35
On June 12, the U.S. Bureau of Labor Statistics will release CPI data for May at 8:30 a.m. ET. Economists anticipate the report will provide additional evidence that inflation is returning to a cooling trend after flaring up in Q1. Bloomberg statistics show analysts expect the headline CPI to increase by 0.1% during May, which would amount to a 3.3% YoY rise, while core CPI will likely increase by 0.3% MoM and fall to 3.5% from 3.6% YoY.
The results of May's CPI release are not likely to have a meaningful impact on the outcome of the FOMC meeting this week, although Fed officials will no doubt be paying close attention.
US May CPI Preview: Will Eased Inflation Justify the Viability of a Third-Quarter Rate Cut?
■ Oil prices fell sharply in May
Average Crude Oil Spot Price is at a current level of 81.44, down from 88.01 last month and up from 74.12 one year ago. This is a change of -7.46% from last month and 9.88% from one year ago. Gasoline prices fell 3.5% on a seasonally adjusted basis. Lower oil prices should translate to a decline in energy prices during the month, which could be a welcome relief for consumers and the Fed.
US May CPI Preview: Will Eased Inflation Justify the Viability of a Third-Quarter Rate Cut?
However, the US government could replenish the Strategic Petroleum Reserve at a faster rate as it aims to buy back oil at about $79 per barrel, which may provide support to oil prices in the coming months.
■ Food prices rose slightly in May
The FAO Food Price Index stood at 120.4 points in May 2024, up 1.1 points (0.9%) from its revised April level, as increases in the price indices for cereals and dairy products slightly more than offset decreases in those for sugar and vegetable oils, while the meat price index was almost unchanged. Although it registered a third consecutive monthly uptick in May, the FFPI remained down 3.4 percent from its corresponding value one year ago and 24.9 percent below the peak of 160.2 points reached in March 2022.
US May CPI Preview: Will Eased Inflation Justify the Viability of a Third-Quarter Rate Cut?
■ New and used car prices continued to fall
The Manheim Used Vehicle Value Index (MUVVI) fell to 197.3, a decline of 12.1% from a year ago. The seasonal adjustment to the index reduced the impact on the month, resulting in values that declined 0.6% month over month.
The average transaction price for new carssold in the U.S.is $47,433. That’s down 0.2% year-over-year, and has fallen by 5% since the start of the year, according to CarEdge.
US May CPI Preview: Will Eased Inflation Justify the Viability of a Third-Quarter Rate Cut?
■ Rents have experienced seasonal increases, but are slightly below last year's levels
Rent growth adheres to a seasonal trend, with rents typically rising during the spring and summer months, while the autumn and winter periods often witness a slight decline in prices. The national median rent has now increased for the fourth straight month, following six consecutive monthly declines. However, the pace of that positive rent growth slowed slightly this month, with rents up 0.5% month-over-month in May after peaking at 0.6 percent in March. Rents are down 0.8% year-over-year.
US May CPI Preview: Will Eased Inflation Justify the Viability of a Third-Quarter Rate Cut?
■ What's the implication?
Although members of the FOMC are unlikely to integrate May CPI data into their projections due to time constraints, any fresh data on inflation will be valuable for understanding the trajectory of price pressures. Economists look for an incremental improvement in core CPI consistent with a return to gradual descent, but doubt it will convince the committee that inflation is sustainably headed back toward 2%. Even more grim is that although inflation is expected to decline in May, ISM PMI Prices, a leading indicator of CPI, could be a sign that inflation may rise again in the second half of this year.
US May CPI Preview: Will Eased Inflation Justify the Viability of a Third-Quarter Rate Cut?
May inflation won't affect Fed's decision to keep interest rates in June, but it will affect the market's game on whether the September interest rate cut will be implemented. The CME FedWatch tool shows that the current probability of a rate cut in September is 49.2%.
US May CPI Preview: Will Eased Inflation Justify the Viability of a Third-Quarter Rate Cut?
Additionally, since the May CPI release coincides with the FOMC meeting on the same day, it could potentially increase market volatility. Stuart Kaiser, head of U.S. equity trading strategy at Citigroup, indicated that the options market expects that these two major events could trigger a daily volatility of up to 1.25% in the S&P 500 index. In the past year, the market's expected fluctuation on CPI release days was typically around 0.75%. Therefore, the forecasted doubling of volatility reflects the increased market uncertainty brought about by these two events.
By North America Team Calvin
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only. Read more
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