Energy prices send inflation to a 3-year high

Inflation for May reached 4.2%, the highest level since April 2023, driven by the energy price shock stemming from the Iran war, according to the consumer price index report released yesterday. But the month-over-month increase was smaller for May than April, in a sign that the worst of the price spikes may be behind us:

• Another good sign is that gas prices have ticked down slightly so far in June.
• Of course, prices continuing to decrease will depend on the US achieving a durable peace agreement with Iran and oil tanker traffic through the Strait of Hormuz returning to prewar levels.

When asked about the report from the Bureau of Labor Statistics yesterday, President Trump said, “I love the inflation,” and that oil barrel prices are coming down because “we took out the other night, 22 ships,” seemingly referring to the US getting ships through the strait under cover of darkness in a clandestine operation.

Working on your core

The core CPI reading, which excludes the more volatile energy and food prices, is considered a better indicator of future inflation by analysts, and it offers reasons for optimism:

• Core prices climbed 0.2% in May, which was less than the 0.4% rise in April and came in under the 0.3% predicted by analysts.
• For the year, the CPI is up 2.9%, in line with experts’ expectations.

Sky-high beef prices fell, but…beware the screwworm. The cost of uncooked ground beef, roast, and steaks dropped last month, but the parasitic fly that appeared in the US last week could complicate logistics for ranchers and lead to higher prices. Government and industry officials stressed that the pest with a fun-to-say name isn’t an immediate threat to the food supply.

As for interest rates, few expect a cut when the Fed makes its first announcement with Chair Kevin Warsh in charge next Wednesday. The odds favor one rate movement this year—a hike in December.—DL