According to data provided by the U.S. Bureau of Labor Statistics, the US consumer price index, or inflation index, fell 0.1% in May 2017—compared to a 0.2% rise in April 2017. The inflation figure didn’t meet the market’s expectations of a 0.10% rise.
The lower inflation index in May was mainly due to the fall in energy prices (XLE) and the gasoline index. Energy prices fell nearly 2.7% in the same month. Gasoline prices fell nearly 6.4%—the biggest loser in May 2017. The food index rose nearly 0.2% in May.
Will it impact the S&P 500 Index?
The inflation index is one of the important indicators for the economy (QQQ) (VFINX) (IWM) and the market (SPY). When the index improves, it strengthens market confidence—it indicates that the economy is getting stronger. It’s also one of the major parameters for the Fed’s rate hike decision.
In the June meeting, we saw a different picture. On June 14, 2017, the Fed raise its key interest rate by 25 basis points despite the fall in the inflation index. It was the Fed’s second rate hike this year. It seems like the Fed wants to continue its gradual rate hike process. The S&P 500 Index (SPY) fell marginally on June 14, 2017, after the announcement of the Fed’s decision.
In the next part of this series, we’ll analyze the performance of US retail sales in May 2017.