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On Wednesday the US Beaurau of Labour Statistics released a report of the monthly adjusted Consumer Price Index for May, and the numbers surpassed the initial forecasts and thus encouraged investors into believing that there is a strong backing to the recent growth performance of the US economy.
The CPI index had previously risen with 0.3% in April, and the general expectation was for somewhat weaker performance in May and even a potential decrease, however, the actual numbers from Wednesday pointed to a 0.1% increase across all sectors.
"The index for all items less food and energy rose 2.0 per cent over the last 12 months, and the food index also rose 2.0 per cent. The energy index decreased by 0.5 per cent over the past year." [source]
As it was mentioned in the weekly expectations article, which you can find here, the biggest concern for investors before the release of the report was the performance of the US economy’s CPI food index, which had previously decreased in April. The food index amounts to nearly half of the May seasonally adjusted all items monthly increase.
Due to the massive portion of the CPI for all items reserved for the food index, even a slight distortion in the agricultural sector can have significant ramifications for the overall inflation rate in the US economy, and that is why the eventual 0.3% hike in the food index turned out so pivotal. Moreover, according to the other findings of the report:
"Over the last 12 months, the all items index increased 1.8 per cent before seasonal adjustment. […] The 12-month change has remained in the range of 1.6 per cent to 2.4 per cent since June 2011."
Thus, with the inclusion of these most recent findings, the US inflation rate is now just below the 2.0% target-level; however, the apparent drop is since the data is considered before the seasonal adjustment, which includes some margin for the disparity. Overall, the index for all items less food and energy has managed to reach the target level, and May's surge in the food index is giving investors reasons to believe that the economy remains resilient and the inflation rate is on course to reach the long-term goals.
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Following the release of Wednesday's CPI summary report, the US dollar gained strength against the euro, and as a result of that, the EURUSD decreased with 0.34% in Wednesday's daily trading session. The currency pair is now trading just below the significant support level of 1.12756.
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