Gold prices down but off their lows as U.S. CPI hits new 40-year high; rising 8.6% in May
(Kitco News) - Inflation pressures in the U.S. appear far from peaking as the consumer prices rose more than expected in May, hitting a new 40-year high. The gold market is off its lows but still under significant selling pressure following the hotter-than-expected rise in the U.S. Consumer Price Index.
Friday, the U.S. Labor Department said its Consumer Price Index rose 1.0% in May after a 0.3% rise in April. The data beat consensus forecasts as economists were forecasting a 0.7% rise.
For the year, inflation rose to 8.6%, significantly beating expectations. Economists were looking for inflation to rise 8.3%.
Stripping out food and energy prices, core inflation also came in hotter than expected, rising 0.6%, following April's rise of 0.6%. According to consensus forecasts, economists were looking for a 0.5% rise.
For the year, core inflation rose 6.0%.
The gold market has seen some technical selling pressure after prices saw a sustained drop below $1,850 an ounce. The precious metal is a small amount of bullish momentum even following the inflation data.
August gold futures last traded at $1,837, down 0.82% on the day.
According to some market analysts, the latest inflation data is a mixed bag for gold investors. Although rising consumer prices will continue to keep real interest rates low, the latest data will continue to support the Federal Reserve's aggressive monetary policy tightening stance.
The Federal Reserve has signaled it will raise interest rates by 50-basis points during its June and July meetings. However, markets are pricing in at least a third 50-basis point move after the summer.
"Overall, this adds upside risk to our existing target for the fed funds rate. The contribution to inflation from shelter is of key concern for the Fed given its stickiness, and with gasoline prices on a sharply higher trajectory in June, the Fed will remain on track to raise rates by 50bps at next week's FOMC," said Katherine Judge, senior economist at CIBC.
The rise in core inflation shows a broad-based rise in consumer prices; however, the report noted that most inflation continues to be driven by rising food and energy costs.
The report said that the energy index rose 3.9% in April, with the
gasoline index increasing 4.1%.
For the year, the energy index rose 34.6% over the last year, "the largest 12-month increase since the period ending September 2005," the report said. Meanwhile, the food index increased 10.1% for the 12-months ending May, the first increase of 10% or more since the period.