In May, the US Producer Price Index (PPI) rose by 2.6% compared to last year, which met expectations. The previous figure was adjusted from 2.4% to 2.5%. Month-on-month, the PPI went up by 0.1%, slightly lower than the expected 0.2%. The earlier month-on-month data was changed from a drop of 0.5% to a rise of 0.2%. When we exclude food and energy, the PPI increased by 3.0% year-on-year, just under the expected 3.1%. On a monthly basis, it also grew by 0.1%, compared to the expected 0.3%. Ignoring food, energy, and trade, this measure rose by 2.7%, down from the previous 2.9%. Monthly, it went up by 0.1%, reversing an earlier drop of 0.1%. The slight softness in these numbers doesn’t significantly ease inflation pressures, appearing alongside data on initial jobless claims. Meanwhile, the US dollar has weakened. The Federal Reserve is feeling pressure to change interest rates, despite inflation measures staying above the 2% target and earlier averages. In simple terms, producer prices are rising slower than some hoped, but not by much. The annual increase is within the expected range, while the monthly changes fell short of estimates. Adjusted previous readings suggest earlier optimism may have been a bit premature. Inflation is proving to be reasonably stubborn. Removing volatile factors like food and energy shows a trend that’s still above comfortable levels. Although there is a slowdown, it isn’t enough to shift wider expectations. The modest month-on-month changes—especially for core measures—indicate limited improvement rather than progress towards stability. At the same time, we’ve noticed a small increase in jobless claims. This subtle change, while not dramatic alone, could complicate the overall situation if it continues. With the dollar under downward pressure, it starts to affect how markets view future policy actions. The dollar’s weakness is expected since inflation isn’t cooling quickly enough, and hopes for immediate rate changes may need to be moderated. Therefore, Powell and his team are treading carefully. The current numbers don’t allow them to ease up yet, even if some would prefer that. Until there is a more convincing decline in price pressures—especially those outside of food and fuel—their options remain limited. For those working with rate-sensitive strategies, the message is clear. We are entering a period of cautious adjustments rather than bold changes. Positioning should account for the revised data and slightly optimistic expectations. While volatility may not spike dramatically, it also won’t diminish quickly. The earlier revisions that showed mild increases suggest that short-term disinflation was overstated. This is a signal to reduce hasty bets on rapid policy changes. Success will rely on timing and precision rather than rushing to follow trends. Finally, we keep an eye on further pressures in the labor market and consumer data. These quieter factors could influence larger changes. It’s important to remember that the Committee doesn’t focus solely on headline figures—they will want consistent evidence before making any moves. This means responses should be cautious and focused on adjustments rather than drastic changes.

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