The stock market didn't do much today. Neither did the bond market. But the price of a barrel of crude oil rose, and so did the price of an ounce of gold. President Donald Trump announced another deal with China. The US will allow Chinese students to continue attending American colleges, and China will continue to provide rare earth minerals to American manufacturers. Tariffs imposed on each country by the other one remain the same.
That didn't excite stock or bond investors, and neither did May's lower-than-expected CPI. Perhaps, they were unsettled that Trump also said he is less confident that Iran will agree to stop uranium enrichment in a nuclear deal with Washington, according to an interview released today. In addition, May's federal deficit data, also released today, reminded investors that fiscal policy remains on an unsustainable course.
Last Friday's employment report confirmed that the labor market and the economy are in good shape. Today's Consumer Price Index report suggested that Trump's tariffs might not be as inflationary as feared. In other words, the widely anticipated stagflation scenario remains a no-show.
Those are a lot of moving parts. Let's review a few of the more important ones:
(1) CPI inflation. May's headline and core CPI inflation rates remained subdued at 2.4% y/y and 2.8% y/y (chart). Prices-paid and prices-received indexes, based on national and regional purchasing managers surveys, have been rising in recent months, reflecting the inflationary consequences of Trump's tariffs. However, these inflationary pressures have yet to show up in the CPI. They were expected to do so by now. It is possible that they might still do so during the summer months. But so far, they are also no-shows.
