US annual inflation gains amid higher oil prices

The annual US inflation rate, based on the Consumer Price Index (CPI), advanced 4.2% last month, according to data from the US Bureau of Labor Statistics (BLS).

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The year-on-year inflation data represents an increase over the 3.8% growth seen in April.

Brent crude's price has remained elevated following the inflation data, which comes amid the ongoing Middle East conflict.

Commenting on the annual CPI reading, SPI Asset Management managing partner Stephen Innes said, “inflation accelerated in May to the fastest pace in more than three years.”

The higher inflation reading has boosted expectations of another interest rate hike by the US Federal Reserve (Fed), according to analysts.

Higher interest rates in the US can weigh on demand growth and make dollar-denominated commodities like oil more expensive for holders of other currencies.

“If crude stays firm… inflation becomes stickier at the exact moment the Fed needs confidence that the pressure is easing,” Innes said.

However, on month-on month basis, the US inflation rate increased by 0.5% in May, slightly lower than the 0.6% growth noted in April.

The month-on-month data represents the second weaker inflation reading since the beginning of the Middle East conflict on 28 February.

Notably, the US central bank remains focused on bringing annual inflation down to its 2% target.

By Aparupa Mazumder

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