• Core CPI inflation remained at 1.7 percent in May
• Headline CPI inflation rose to 1.4 percent, from 1.1 percent in April
• CPI inflation to slowly bounce back to 2 percent
Core CPI up 0.2 percent in May, exactly as expected
The core CPI (consumer price index, excluding food and energy) increased by 0.2 percent m-o-m in May, versus 0.1 percent in April. This was exactly in line with expectations. Headline CPI rose by 0.1 percent in May, versus a decline of 0.4 percent in April. This was lower than expectations of an increase of 0.2 percent. The rise in headline CPI was mainly caused by rising gasoline prices.
CPI Inflation to slowly bounce back to 2 percent
Currently, inflation is being pushed down by low resource utilisation and a strengthening trade-weighted USD. We believe that core CPI inflation will slowly bounce back to the Fed target of 2 percent. However, a transformation of the US economy has likely increased structural unemployment. Several Fed officials have warned of a significant mismatch in the labour market, indicating that core inflation could overshoot its target in a longer perspective.
Projection of core CPI
In the graph below, we present a projection under the assumption that core CPI changes at the same pace as its average during the past six months.
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