US Inflation details ease concerns of energy spillover effects

Softer US inflation, but the energy squeeze on spending power is becoming obvious

Softer US inflation, but the energy squeeze on spending power is becoming obvious

US Inflation details ease concerns of energy spillover effects

The current commentary indicates a lessening of inflation concerns in the U.S. as core inflation showed unexpected resilience despite a spike in gasoline prices impacting the headline figures. Per the full note from ING, while headline inflation increased 0.5% month-on-month in May, the core inflation rate was softer than anticipated at 0.2% month-on-month, suggesting that underlying price pressures may not be as acute as previously feared. This divergence has led to a subtle shift in Fed rate hike expectations, with the probability of a 25 basis point increase by 2026 slightly diminished. Overall, this easing inflation narrative may support a more stable outlook for the USD against other currencies in the near term, especially as gasoline prices are expected to moderate in the coming months.

Global Rates: Inflation Markets in Europe, the UK and the US

The desk believes that inflation markets are settling into a more stable phase as recent trends in the euro area, UK, and US suggest easing pressures on breakeven rates. Per the full note by J.P. Morgan, the recent easing of energy prices and its aftermath on inflation expectations indicate potential headwinds for aggressive central bank tightening. Traders should note that data indicates softened inflation metrics across major economies, especially following the latest FOMC meeting and geopolitical factors such as the US-Iran memorandum of understanding.