US May CPI Rises 3.3% YoY 'Below Expectations'... Treasury Yields Plunge on September Pivot Hopes

The US consumer price index (CPI) inflation rate for last month came in below market expectations, supported by a decline in energy prices. The core CPI inflation rate, closely watched by the Federal Reserve (Fed), also recorded its lowest level in about three years for the second consecutive month. With the Federal Open Market Committee (FOMC) meeting scheduled for the day likely to result in a hold on the benchmark interest rate, market expectations for a rate cut in September are spreading.

[Image source= Xinhua News Agency]

원본보기 아이콘

On the 12th (local time), the US Department of Labor announced that the May CPI rose 3.3% year-on-year. This figure was below both the forecast (3.4%) and the previous month’s figure (3.4%). The month-on-month increase was 0%, also below the forecast (0.1%) and the previous month (0.3%).

The core CPI rose 0.2% month-on-month and 3.4% year-on-year. The year-on-year increase marked the lowest level in about three years since April 2021 for the second consecutive month. It also fell short of market expectations (0.3%, 3.5%) and the previous month’s figures (0.3%, 3.6%), confirming a slowdown in inflation. The core CPI excludes volatile energy and food prices, showing the underlying trend in prices, making it one of the inflation indicators the Fed pays closest attention to.

The decline in energy prices contributed to the drop in the CPI inflation rate. Gasoline prices fell 3.6% month-on-month, after rising 2.8% the previous month. As a result, overall energy prices shifted from a 1.1% increase in April to a 2% decline last month. Airfares, new cars, telecommunications, and clothing prices also decreased. On the other hand, housing costs rose 0.4% month-on-month, maintaining the increase seen in April (0.4%). Medical care, used cars and trucks, and education costs increased.

With the slowdown in CPI and core CPI inflation last month and the figures falling short of expert forecasts, market expectations for a rate cut in September are rapidly spreading. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on this day reflected about a 70% chance that the Fed will cut rates by at least 0.25 percentage points at the September FOMC meeting. This is a sharp rise from around 52% just the day before.

Government bond yields are also plunging. The US 10-year Treasury yield, a global benchmark for bond yields, is trading at 4.28%, down 12 basis points (1bp = 0.01 percentage points) from the previous trading day. The US 2-year Treasury yield is slightly up from the previous trading day, standing at around 4.83%.

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.