⏳ Reading Time: 2 minutesWith markets understandably captivated by the upcoming SpaceX IPO – one of the most anticipated listings in recent years – we decided to turn our attention elsewhere this week and refocus on a different market driver: US inflation.
US inflation for May came in at 4.2% year-on-year – in line with expectations but well ahead of the Central Bank’s 2% target and a sharp increase from April’s figure (see chart below). As you might have expected, higher oil prices drove the increase, with the energy component of the Consumer Price Index (CPI) basket rising around 23% year-on-year.
The good news from the release is that core inflation (excluding food and energy) was fairly well-behaved – rising year on year, as the chart shows, but overall quite well-behaved given a fairly robust labour market. We think that partly explains why market expectations for inflation a year from now have actually fallen over the past few months (see chart of US inflation swaps below). We should remember that central bankers and investors might focus on core inflation, but households pay for everything (food and petrol included). Headline inflation matters more for the consumer!
It’s a reminder that so far at least the closure of the Strait of Hormuz has had much less of an impact on energy prices than we might have feared prior to March. We’d also infer that investors continue to expect a resolution to the conflict in the Middle East that will increase the flow of energy through the Straits.
