Market Overview

Headline CPI Falls as Inflation Remains In Check

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This morning the U.S. Consumer Price Index was released.

  • The CPI, month-over-month, came in at -0.3% against an estimated -0.2%.
  • Core CPI, month-over-month, came in at 0.2% against an estimated 0.2%.
  • CPI, year-over-year, came in at 1.7% against an estimated 1.8%.
  • Core CPI, year-over-year, came in at 2.3% against an estimated 2.2%.

This lower-than-expected CPI figure should calm investors' fears of inflation. It also increases the likelihood of a surprise quantitative easing program by the Federal Reserve in the near future.

The Consumer Price Index tracks the cost of living by measuring the changes in the price paid by consumers for goods and services. CPI is important because it tracks changes in purchasing trends, and it shows inflation on the consumer level in the past month.

With the economic volatility associated with rising price levels, the Fed often will raise interest rates to check inflation, given a high-growth economic environment. On the other hand, low or falling CPI is indicative of declining prices, which may suggest an economic slowdown and the increased probability the Fed may use monetary policy measures to spur growth.

According to the Bureau of Labor Statistics, the Consumer Price Index for All Urban Consumers decreased 0.3 percent in May on a seasonally adjusted basis. Over the past 12 months, the all items index increased 1.7 percent before seasonal adjustment.

The gasoline index declined 6.8 percent in May, leading to a sharp decrease in the energy index and the decline in the all items index. The indexes for natural gas and fuel oil declined as well, though the electricity index increased. The food index was unchanged, with a slight decline in the index for food at home, offsetting an increase in the food away from home index.

The index for all items less food and energy rose 0.2 percent in May, the third consecutive such increase. The indexes contributing to the increase were largely the same ones as in April: shelter, medical care, used cars and trucks, apparel, airline fares and new vehicles. The indexes for household furnishings and operations and for tobacco declined.

U.S. equity futures saw an initial move lower after the 8:30 a.m. ET release, likely from the weaker initial jobless claims report released at the same time. Currently, Dow Jones Industrial Index has erased its previous losses and is trading up about 100 points on the session.


Traders who believe that the CPI is a leading indicator for the U.S. economy might want to consider the following trades:
  • Going long currencies opposite the U.S. dollar, like the British pound or the Australian dollar.
  • Going long pharmaceutical companies such as Pfizer (NYSE: PFE) or Mylan (NYSE: MYL), could be profitable as demand generally is inelastic with drugs.
Traders who believe that CPI is not a leading indicator for the U.S. economy might want to consider the following trades:
  • Going long Consumer Staple companies like Procter & Gamble (NYSE: PG) and Colgate (NYSE: CL), because even if inflation is higher, consumers still need to buy staple products like shampoo and toothpaste.
  • Traders could short big-ticket appliance makers like Whirlpool (NYSE: WHR), as demand is more elastic.
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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