Consumer Price Index Soft

Price pressures at the consumer level are losing pace, as the ex-food ex-energy core rate missed expectations with only a 0.1 percent gain in May. The year-on-year rate edged 1 tenth lower to 2.0 percent which also misses expectations. Overall prices rose an as-expected 0.1 percent though the annual rate fell 2 tenths and at 1.8 percent is moving away from the Federal Reserve's target.

Energy fell a monthly 0.6 percent in May with gasoline down 0.5 percent. But food is showing some pressure, up 0.3 percent for a 2.0 percent annual rate. Medical care is also showing a little lift, also up 0.3 percent in the month for a 2.1 percent pace and a 2 tenths gain. Housing, which makes up nearly 1/2 of the index, continues to be the central area of price support though strength is weakening, up only 0.1 percent on the month and 2.8 percent on the year vs 2.9 percent in April.

Other readings include no change for apparel, an area that Jerome Powell was expecting to see some traction appearing. Year-on-year, apparel prices are down 3.1 percent. But airfares, another area Powell expects to see strength, did jump 2.0 percent in the month though this yearly rate is still soft at 0.9 percent. New vehicle prices rose a monthly 0.1 percent with used vehicles down 1.4 percent.

At the last FOMC in late April and early May, policy makers were putting a positive spin on a slumping core inflation rate, in this case the Fed's preferred gauge which is the PCE core which was at 1.6 percent in April. This rate runs several tenths below the CPI core and today's report is not pointing to acceleration for the PCE core back to the 2.0 percent target. The spin Powell puts on the latest inflation data could well be the most important part of next week's FOMC results.