US: Inflation continues its gradual climb - Wells Fargo

 According to analysts from Wells Fargo, the May Consumer Price Index (CPI) report showed a gradual strengthening in core inflation and they suspect that the recent upturn in inflation will support a modest turnaround in consumers’ inflation expectations in the coming months.

Key Quotes:

“Consumer price inflation continued to creep higher in May, with the CPI rising 0.2 percent. The increase was slightly below expectations for a 0.3 percent gain. As expected, the rebound in oil and gas prices in May helped to support the headline.”

“Core consumer prices rose at what looks to be an increasingly trend-like gain of 0.2 percent. There remains a marked difference, however, between the trend in core goods and services.”

“Based on yesterday’s meeting, the FOMC remains comfortable with the recent strengthening in inflation. Although members project a slightly stronger pace of core PCE inflation over the next 18 months, most also expect a more gradual path for rate hikes over the next couple years. Core inflation has picked up since the FOMC raised rates in December, but is only now approaching levels consistent with the Fed’s target.”

“The more pressing concern for the Fed at the moment appears to be long-term inflation expectations, which are still at historic lows despite the rebound in energy prices. We suspect that the recent upturn in both headline and core inflation will support a modest turnaround in consumers’ inflation expectations in the coming months, and, in contrast to 2015, inflation will not be the reason for the Fed to hold off on raising rates later this year.”