US inflation hit its lowest level since March 2021

Annual inflation fell from 4.9% to 4% between April and May, while prices rose just 0.1% month-on-month

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Photo: Mike Blake (Reuters)

For the eleventh month in a row, US inflation cooled between April and May, with the prices of goods and services rising by just a timid 0.1% in May—another strong signal to the Federal Reserve that it should hold interest rates steady or even drop them.

A 12-month overview shows an annual inflation rate of 4% in May, a significant drop from the 4.9% in April.


Stripping away the volatile prices of variables such as food and energy, the core consumer price index climbed by 0.4% from April to May. This uptick owes a lot to used car prices, which were up 4.4%. But Goldman Sachs economists anticipate a drop in used car prices in the near future, pointing to recent auction data revealing a slowdown in used cars that has yet to reflect in the consumer price index.

The Fed is expected to decide on its next interest rate move on Wednesday (June 14). The latest inflation data is a further prong in the argument to pause rate hikes or even reverse them.


Other recent indicators are just as telling. An index of US services activity, compiled by the Institute for Supply Management, was stagnant in May. The Census Bureau found that factory orders rose less than expected in April. And the unemployment rate—the metric that the Fed watches keenly—rose to 3.7% in May, even as initial jobless claims in the week ending June 3 soared to 261,000, the highest level since October 2021.

What does this mean for stocks?

Analysts from Bespoke Investment Group have observed an increasing trend where the consumer price index frequently aligns with or falls short of economists’ projections. This pattern is typically followed by the S&P 500 advancing by almost one percent on the day of the CPI’s release. In response to today’s news, S&P 500 Futures moved up initially by 0.3%.