May inflation climbs to 4.2%, Fed likely stays on hold

May inflation rose 0.5% month over month, pushing the year-over-year CPI to 4.2% and marking the fastest pace since April 2023. The energy index advanced 3.9% for the month and 23.5% year over year, accounting for more than half of the monthly increase. Core CPI, excluding food and energy, rose 0.2% month over month and 2.9% year over year. Odeta Kushi of First American described the report as a tale of two CPIs, with energy driving the headline and core inflation remaining relatively contained. Economists expect the Fed to hold rates in the near term, given the softer core read and a resilient labor market. Shelter rose 0.3% month over month and 3.4% year over year; food costs were up 0.2% and 3.2%, respectively. May housing data showed existing-home sales posting their strongest monthly gain of the year, suggesting inventory and confidence are supporting the housing market.