The May 2024 Consumer Price Index of All Urban Consumers (CPI-U) report indicates that inflation was flat for the month, coming in below April’s increase (+0.3%). These data were released at 8:30 am EST on Wednesday, June 12, 2024, by the Bureau of Labor Statistics. Before seasonal adjustment, the year-over-year (Y-o-Y) inflation rate in the all-items index grew by 3.3%, which is also a deceleration from April’s 3.4% Y-o-Y CPI reading.
Adding fuel to the rate-cut debate, the headline and core CPIs came in below economists’ consensus estimates. The table below is courtesy of Investing.com. The left column represents May’s figures, while the right column represents forecasters’ expectations. As you can see, the monthly and Y-o-Y CPIs (marked in red) were weaker than expected.
Furthermore, the Federal Open Market Committee (FOMC) releases its Monetary Policy Statement today at 2 p.m. ET. The group is widely expected to maintain the federal funds rate at its 5.25% to 5.5% range. However, Chairman Jerome Powell holds his press conference at 2:30 p.m. ET, and he should discuss the Committee’s projections and shed light on the path of interest rates in the months ahead. With U.S. government and consumer credit card debt at or near record highs, monetary easing would certainly help reduce the strain on low-income households.
Global markets lauded the CPI slowdown, with American and European indices climbing. Similarly, Treasury bonds and precious metals rallied as rate-cut expectations increased, while the U.S. dollar suffered as market participants adopted a more dovish outlook.
May’s headline inflation deceleration was driven by lower gasoline prices (-3.6%), utilities (-0.8%), new vehicles (-0.5%), and transportation services (-0.5%). Core inflation (which excludes the impacts of food and energy), rose 0.2% in May, the weakest monthly reading in 2024. The indexes for airline fares, new vehicles, communication, recreation, and apparel led the declines.
Source: Bureau of Labor Statistics
Food Prices
The food index increased by 0.1% in May after remaining flat in April. Uncooked poultry and beef roasts declined by 2.6% and 3.1%, respectively, while margarine fell by 2.7% and carbonated drinks sunk by 2.0%. Two of the six major grocery store food indexes showcased deflation, two were unchanged, and the other two increased.
- Cereals and bakery products (+0.2%)
- Meats, poultry, fish, and egg (+0.2%)
- Dairy and related products (-0.5%)
- Fruits and vegetables (+0.0%)
- Nonalcoholic beverages (-0.3%)
- Other food at home (+0.0%)
In addition, the food away from home index jumped 0.4% in May, outperforming the 0.3% increases from the previous two months. As a result, restaurants continue to demonstrate resilient pricing power.
Energy Prices
The energy index dropped 2.0% in May, a noticeable decline from April’s 1.1% rise. Gasoline and natural gas prices also fell by 3.6% and 0.8%, while the fuel oil index was down 0.4%. The index for electricity was flat in May.
Core CPI May 2024
The May core CPI rose by 0.2% month-over-month, the lowest monthly print in 2024. On a Y-o-Y basis, the metric rose +3.4%. Below is an itemized breakdown of the main price fluctuations seen in the core CPI reading:
- Shelter index: (+0.4%) [April: +0.4%]
- Rent index: (+0.4%) [April: +0.4%]
- Owners’ equivalent rent: (+0.4%) [April: +0.4%]
- Motor vehicle insurance: (-0.1%) [April: +1.8%]
- Medical care services: (+0.3%) [April: +0.4%]
- Physician services: (+0.0%) [April: +0.1%]
- Hospital services: (+0.5%) [April: +0.6%]
- Airline fares: (-3.6%) [April: -0.8%]
Source: Bureau of Labor Statistics
Seasonally Unadjusted CPI Data for May 2024
Before seasonal adjustments, the CPI-U for May 2024 increased (+3.3%) Y-o-Y, rising to an index level of 314.069. Since these figures are unadjusted, they include regular seasonal price fluctuations that can create volatility in the results.
Source: Bureau of Labor Statistics
Gold Bugs Rejoice
With the CPI slowdown supporting lower interest rates and a weaker U.S. dollar, gold has been one of the best-performing assets in 2024. Likewise, silver has really shined in recent weeks. Since precious metals futures contracts are priced in USD, a weaker greenback makes it more affordable for foreign investors to purchase the yellow metal. As such, lower Treasury yields, a weaker dollar, and increased rate-cut enthusiasm create a profitable environment for gold enthusiasts.
However, if other commodities exhibit similar strength, bullish bets on assets like oil, gasoline, food, lumber, etc. could increase inflation in the months ahead. Moreover, lower interest rates increase American’s disposable income, which could boost consumption during the summer months when economic activity is typically strong.
Thus, 2024 winners like gold, silver, Bitcoin, and Ethereum are betting that the Fed will find it difficult to tame inflation without causing a recession that sparks the next round of quantitating easing. In contrast, the S&P 500 and NASDAQ Composite have soared on hopes that inflation will fade and a soft landing will materialize. Only time will tell which team claims victory.
Are you thinking about diversifying into precious metals? Talk to your financial advisor about initiating a gold IRA account today, allowing you to invest in this red-hot asset on a tax-advantaged basis. Additionally, our complimentary CPI inflation calculator remains at your disposal, enabling you to assess inflation’s impact on your finances. Remember, seek the guidance of a financial advisor before making any investment decision.
Alex Demolitor is a Canadian financial writer hailing from Halifax, NS. Alex has a Bachelors Degree from King's College and passed the CFA Exam Level III. He specializes in fundamental analysis of the stock, bond, commodity, and FX markets. He also covers US & Canadian economic indicators.
