As markets await looser U.S. monetary policy, inflation data is closely watched, with services inflation still running hot as goods inflation continues to cool.
In a new report, National Bank Financial Inc. (NBF) noted that global financial markets “cheered” when U.S. consumer inflation data for May came in slightly weaker than expected for both headline and core metrics.
Yet, the “real question” for markets “is whether the ongoing deflation in core goods will be enough to offset the persistent inflationary pressures in core services,” it said.
NBF noted that annual services inflation has now been running at over 5% for 24 consecutive months, which marks “the longest such streak since the early 1990s.”
“There is no precedent in modern U.S. history for core services inflation to be above 5% while core goods are deflating,” NBF said.
Rising U.S. tariffs on Chinese goods could disrupt the decline of goods inflation in the coming months, the report noted.
So, while inflation surprised on the downside recently, that trend may be tougher to sustain in the months ahead.