Quick Look:
- US CPI remained flat in May 2024, down from a 0.3% rise in April.
- Cooling gasoline prices significantly contributed to the stabilisation.
- Rose by 0.2% in May, marking the smallest annual gain since April 2021.
In May 2024, the United States Consumer Price Index (CPI) saw no change. This stability comes after a 0.3% rise in April 2024. A significant factor in this stabilisation was the cooling of gasoline prices, which considerably impacted the overall CPI. Year-over-year, the CPI increased by 3.3%, slightly down from 3.4% in April. The core CPI, which excludes volatile food and energy prices, rose by 0.2% in May, marking the smallest 12-month gain since April 2021. Annually, the core CPI through May was up 3.4%, a decrease from 3.6% in April.
Economists Expected 0.1% CPI Increase; Gasoline Prices Lower
Economists had predicted a modest 0.1% increase in the CPI for May 2024, but the cooling gasoline prices contributed to a better-than-expected performance. The Federal Reserve’s inflation target stands at 2%, which remains a pivotal benchmark for economic policy. In light of the current data, market expectations have shifted, predicting two 25 basis point rate cuts by the Federal Reserve in September and December 2024. This expectation has been revised from an earlier forecast of 75 basis points in total cuts.
The market reacted positively to the inflation data, driven largely by the stabilisation in gasoline prices. US stock index futures climbed by 0.72%. The 10-year US Treasury yield was recorded at 4.293%, while the 2-year US Treasury yield stood at 4.71%. The dollar index fell by 0.7%, and the euro appreciated by 0.74%.
FOMC Confident in Disinflation, Gasoline Cautious on Rate Hikes
The Federal Open Market Committee (FOMC) displayed confidence in the ongoing disinflation trend, noting the reduced likelihood of aggressive rate hikes. Despite nearing the 2% inflation target, the Federal Reserve is expected to be cautious. Analysts broadly agree that the disinflation process is back on track, largely due to the cooling gasoline prices, which have significantly improved the inflation outlook.
Oil Prices Near $78/Barrel; US Crude Stockpiles Rise
Oil prices hovered near $78 a barrel due to an unexpected rise in US crude stockpiles. West Texas Intermediate crude showed little change after climbing up to 1.8%. The increase in US oil and gasoline inventories indicated a sufficient supply, contributing to the broader risk-on sentiment and initially cooled inflation pressures, driving the crude rally. The Federal Reserve’s upcoming interest rate decision will influence market dynamics further.
Speculative bullish bets on oil might reverse, as noted by analysts. Goldman Sachs Group Inc. predicts a recovery in financial demand for oil contracts, with US oil production forecasted to reach a new record in 2024. However, the International Energy Agency has warned of a persistent oil surplus for the rest of the decade.
Analysts Predict Oil Prices May Face Downward Pressure
Fawad Razaqzada from City Index and Forex.com highlighted that the recent market recovery has weakened bearish control. He emphasised the need for further price action to confirm a bottom and suggested that crude oil prices might face downward pressure again despite the recent recovery. The pattern of lower highs indicates that the short-term path of least resistance for crude oil remains downward until contradicted by further chart developments. The stabilisation in gasoline prices has played a crucial role in this dynamic, reflecting a broader trend of disinflation and economic stabilisation.
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