US Inflation Data

Below is a market commentary on the recent inflation figures as released on Wednesday June 11th 2025 at 1:30 pm BST. 


Core inflation rate as measured by the Core Consumer Price Index (CPI) MoM figure rose slightly by 0.1% from April to May 2025. This increase was at a slower pace than the rate of the previous MoM figure from March to April 2025 when the Core CPI increased by 0.2%. This shows that the pace at which core inflation has increased this month was less than that of the previous month. The core CPI print also missed the 0.3% increase forecasted by economists for the May 2025 MoM figure.


Core inflation rate year-on-year as measured by the core CPI YoY figure increased by 2.80% from May 2025 to May 2024. This was at the same rate as the previous month’s YoY figure which also showed a 2.80% increase from April 2025 to April 2024. This shows that the inflation on a year-on-year basis for the month of May increased by 2.80%, but the rate of increase has remained unchanged.


Headline inflation rate MoM basis as measured by CPI MoM increased by 0.1% in May compared to a higher figure in April of 0.2%. This showed that headline inflation is also increasing at a slower pace on a MoM basis. The forecasted rate on a MoM basis was 0.2% showing that the actual print for May was less than that forecasted.


The headline inflation rate YoY basis as measured by CPI YoY increased by 2.4% from May 2024 to April 2025. This was lower than the forecasted figure of an increase of 2.5%. The previous figure was at a 2.3% increase from April 2024 to April 2025. This shows that on a YoY basis the rate at which headline inflation is increasing has slowed down.


The slower pace in the increase of inflation rate as measured by both core and headline CPI points towards prices rising at a slower pace in the US which has led analysts to speculate for earlier rate cuts from the Federal Reserve pushing yields and the dollar lower.



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Below are the answers to some questions about inflation given by ChatGPT for background information:

1. What is Inflation?

Inflation is the rate at which the general level of prices for goods and services rises over a period of time, eroding purchasing power. When inflation is high, consumers can buy less with the same amount of money.

2. How is Inflation Measured?

Inflation is primarily measured using price indices, which track the price of a "basket" of goods and services over time. Common indices include:

  • CPI (Consumer Price Index): Measures the average change in prices paid by consumers.

  • PPI (Producer Price Index): Measures the average change in selling prices received by domestic producers.

  • PCE (Personal Consumption Expenditures): Used by the U.S. Federal Reserve as its preferred inflation gauge.

Each index has its own methodology, but the CPI is the most widely reported.

3. Types of Inflation: Core vs Headline

Type

Description

Headline Inflation

Includes all items in the consumer basket, including volatile food and energy prices.

Core Inflation

Excludes food and energy prices to provide a less volatile view of inflation trends. Often used by central banks for policy decisions.

4. What is Month-on-Month (MoM) Inflation?

MoM inflation measures the percentage change in prices from one month to the next.

5. What is Year-on-Year (YoY) Inflation?

YoY inflation compares the current price level to the same month in the previous year.

Example:

6. How Inflation Data Impacts Financial Markets

Market

Impact of Rising Inflation

Currency (FX)

Usually strengthens currency if it leads to higher interest rate expectations by the central bank (e.g., USD rises on hot inflation data due to Fed hike bets).

Bonds

Negative for bond prices: Inflation erodes the real return of fixed coupons. Yields rise (prices fall).

Commodities

Often positive for commodities, especially gold (inflation hedge) and oil (if inflation is driven by demand).

Equities

Mixed effect: - High inflation hurts profit margins and consumer demand. - However, equities may rise if pricing power is strong (e.g., in energy or consumer staples). - Rate-sensitive sectors like tech and real estate tend to underperform.

Here’s a clear explanation of the difference between inflation, disinflation, and deflation, three key concepts in price level analysis:

1. Inflation

  • Definition: A sustained increase in the general price level of goods and services in an economy.

  • Effect: Reduces the purchasing power of money.

  • Example: CPI rises from 100 to 105 → 5% inflation.

2. Disinflation

  • Definition: A slowdown in the rate of inflation—prices are still rising, but at a slower pace.

  • Effect: Indicates that inflationary pressures are easing, often due to tighter monetary policy.

  • Example: Inflation rate falls from 6% to 3% → still inflation, but lower.

⚠️ Important: Disinflation is not the same as deflation. Prices are still going up—just more slowly.

3. Deflation

  • Definition: A sustained decline in the general price level of goods and services.

  • Effect: Increases the purchasing power of money but can lead to economic stagnation (falling wages, lower investment, rising debt burden).

  • Example: CPI falls from 100 to 98 → -2% deflation.

Quick Comparison Table

Concept

Price Level

Inflation Rate

Common Cause

Inflation

Rising

Positive

Strong demand, rising costs, loose monetary policy

Disinflation

Rising

Positive (slowing)

Tightening monetary policy, weakening demand

Deflation

Falling

Negative

Economic downturn, falling demand, excess capacity

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