“US CPI has been slowing. However, uncertainty on US tariffs and rising tensions between Israel and Iran, which could keep oil prices high, may make central banks job more difficult.”
- Consumer prices growth decelerated in May, mainly due to lower energy prices and cooling shelter inflation.
- The Fed is likely to remain vigilant on inflation mainly due to the impact of tariffs and volatility in energy prices.
- We believe investors should maintain sufficient safeguards to navigate the uncertainty.
US CPI decelerated to 0.1% (Month on Month) in May, primarily due to lower energy prices. It was the fourth consecutive month in which the CPI came in below expectations. Core inflation, which excludes food and energy, also decelerated. We think the impact of tariffs is not yet visible on the price of goods. However, there are several factors that could create volatility. For instance, the looming July deadline for US tariffs and any potential increase in import duties could affect inflation. The recent US-China negotiations have shown that uncertainty is likely to remain. In addition, any sustained shock to oil prices, following the increase in tensions between Israel and Iran, may complicate the Fed’s plans to bring down inflation sustainably and reduce policy rates.
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