Inflation Is Chilling Down While Middle East Is Heating Up

May's PPI inflation report, released today, was lower than expected as was May's CPI inflation report yesterday. The PPI final demand for personal consumption edged down to 2.6% y/y in May, while the CPI rose only 2.4% during the month (chart). Both suggest that May's PCED inflation rate might have dropped to 2.0%, which would finally be down to the Fed's target for this inflation rate. The Cleveland Fed's Inflation Nowcasting for PCED inflation is a bit higher at 2.3% for both May and June. Either way, the relevant data suggest that President Donald Trump's tariff hikes have yet to boost consumer price inflation as widely expected.

Furthermore, initial and continuing unemployment claims remain subdued suggesting that the labor market and the economy may be more resilient to Trump's Tariff Turmoil (TTT) than has been widely expected. In other words, the stagflation scenario remains a no-show.