U.S. Inflation Slows. Is a Rate Cut in the Cards?

Executive summary:

  • U.S. consumer price gains eased during May
  • The Bank of England could start cutting rates in August
  • Inflation remains subdued in China

On the latest edition of Market Week in Review, Investment Strategist BeiChen Lin and Product Operations Analyst McKenna Painter discussed the latest U.S. inflation data and how it could impact U.S. Federal Reserve (Fed) policy. They also assessed when the Bank of England (BoE) could begin lowering borrowing costs and concluded with an update on economic growth in China.

Encouraging inflation reports suggest Fed may cut rates in September

Painter and Lin began by reviewing the U.S. consumer price index (CPI) and producer price index (PPI) readings for May, both of which were published by the Labor Department the week of June 10. In both instances, inflation came in softer than anticipated, Lin said—an encouraging sign after a string of hotter-than-expected inflation reports in the first few months of the year.

Starting with the CPI, he said that core consumer prices—which exclude the more volatile food and energy sectors—rose just 0.2% on a month-over-month basis, compared to expectations for a 0.3% increase. Likewise, annual price gains eased to a rate of 3.4% in May—below both consensus expectations and April's CPI reading of 3.6%, Lin added. Meanwhile, the core PPI—which measures what producers pay for their goods and services—came in flat for May on a month-over-month basis, he noted.