Wall Street exhaled. The May Consumer Price Index came in at 4.2% year-over-year, exactly where economists expected it, and equity futures ticked higher almost immediately.
The number is still the highest inflation reading since April 2023. But in a market that had spent weeks pricing in something uglier, “meeting expectations” was enough to spark a relief rally in futures.
The numbers behind the sigh of relief
Yes, 4.2% is elevated. It’s also a meaningful jump from April’s 3.8% reading. But the monthly gain in headline CPI slowed to 0.5%, which gave traders the signal they needed.
Core CPI, which strips out volatile food and energy components, came in at 2.9% year-over-year. The gap between headline and core inflation tells a familiar story: energy prices, driven largely by geopolitical tensions in the Middle East related to Iran, are doing most of the heavy lifting on the inflation front.
