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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.”

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