US: Inflation environment remains benign - Wells Fargo

Data released today showed the CPI rose 0.1% and the core index also 0.1%.  According to analysts at Wells Fargo core inflation is likely to bounce back modestly in the coming months, but the overall trend remains tame and supports the case for “insurance” cuts by the Fed. 

Key Quotes: 

“Inflation remained tame in May, with the Consumer Price Index advancing just 0.1%. The headline was held down by a 0.6% drop in energy prices as costs for gasoline, electricity and gas services all fell.”

“The renewed weakening in energy prices sent headline inflation down a tick to 1.8% on a year-ago basis. Inflation, excluding food and energy, was also soft in May.”

“On a three-month annualized basis, core prices are increasing at the slowest pace in about two years.”

“The impact from tariffs remains minimal thus far with the Trump administration directing tariffs largely to intermediate goods.”

“Core PCE is on track to rebound, but the tepid rate of core CPI inflation points to the Fed’s measure merely catching up, and not a sustained acceleration.”

“We expect PCE inflation will continue to struggle to meet the FOMC’s target, contributing to the FOMC’s willingness to deploy “insurance” rate cuts later this year.”