Consumer inflation remains very soft at minus 0.1 percent in May with the ex-food & energy core rate at plus 0.1 percent, both 1 tenth lower than consensus expectations.
Fundamental cost areas are unquestionably weak with housing up only 0.2 percent and medical care unchanged and continuing its weak run this year. Education & communication is also weak, unchanged and continuing to reflect discounting among telecom providers. Major declines were posted for energy, down 2.7 percent and including a 6.4 percent decline for gasoline, and also apparel, down 0.8 percent for a third straight decrease, and also transportation, down 1.4 percent and reflecting a decline in new vehicle prices.
Year-on-year rates are also lower than expected, at 1.9 percent overall and at only 1.7 percent for the core which is noticeably 2 tenths below the consensus.
Inflation, lacking any boost from wages, just can't find any traction and is beginning to trend lower, not higher. These results, though very weak and released with a similarly weak retail sales report, won't unsettle expectations for a rate hike at this afternoon's FOMC. They do, however, underscore second-quarter weakness and will have an effect on expectations for future Fed rate hikes.
Consumer prices proved unexpectedly weak in both March and, despite an upturn in producer prices, in April as well. April's weakness included medical care and once again communications where providers are in a price war. Econoday's consensus for consumer prices in May calls for no monthly change at the headline level (vs a 0.2 percent increase in April) with the year-on-year rate seen slipping to 2.0 percent (vs 2.2 percent). Energy doesn't look to be a major factor in May though the less food & energy is seen rising 0.2 percent (vs 0.1 percent) with this yearly rate, however, unchanged at 1.9 percent.