Freshly released Consumer Price Index (CPI) data for May has come in lower than anticipated across key metrics, strengthening market expectations for a Federal Reserve interest rate reduction in September.
The seasonally adjusted monthly CPI increased by 0.1%, falling short of both the forecasted 0.2% rise and the prior period’s 0.2%. Year-over-year, the unadjusted headline CPI stood at 2.4%, also below the expected 2.5%, despite a climb from the previous 2.3%.
Core inflation figures, excluding volatile food and energy prices, offered a complex picture. The unadjusted annual core CPI rate held steady at 2.8%, aligning perfectly with both expectations and the previous period’s reading. Crucially, however, the seasonally adjusted monthly core CPI figure rose by a modest 0.1%, significantly undershooting the anticipated 0.3% increase and coming in below the prior 0.2%.
The combination of softer headline inflation and, notably, the unexpected slowdown in underlying monthly price pressures has led traders to significantly ramp up speculative wagers. Market participants now perceive a notably higher probability of the Federal Reserve commencing interest rate cuts during its September meeting as policymakers potentially respond to these signals of cooling inflation.