Core inflation comes in cooler than expected

Inflation ticked up in May, but the key core inflation metric came in cooler than economists had expected, according to the most recent reading by the Bureau of Labor Statistics, released on Wednesday.

Consumer prices rose 0.5% month over month, with core inflation (which strips out volatile food and energy prices) rising 0.2%, slightly cooler than the 0.3% economists were expecting.

Year over year, prices increased 4.2%, the highest in three years, reflecting higher energy prices caused by the war in Iran. Stripping out food and energy, prices rose 2.9%. Both figures are right in line with what economists were penciling in.

S&P 500 Index futures, which had fallen earlier this morning amid escalating tensions in Iran, trimmed some of their losses after the report.

Expectations across various Fed-related prediction markets were largely unchanged following the report. The inflation report, paired with a surprisingly strong jobs report last week, seemed to solidify expectations that the Federal Reserve will keep rates steady at its meeting next week.

“The in-line headline CPI and subdued core inflation data give the Fed some breathing room to remain patient as the energy supply shock plays out,” Angelo Kourkafas, a strategist at Edward Jones, said in a statement.