May CPI Hits 4.2% as Inflation Remains Elevated While Housing Sales Rebound

This week’s economic data includes: (1) existing home sales for May, (2) Consumer Price Index (CPI) for May, (3) Producer Price Index (PPI) for May, (4) real earnings for May, (5) weekly initial jobless and continuing claims, and (6) market trends across equities, oil and Treasury markets along with rate-cut expectations.

 

KEY SUMMARY:

Existing home sales rose solidly in May to their highest level since December, supported by broad-based regional gains and steady price appreciation, although elevated mortgage rates, constrained inventory, and lock-in effects continue to weigh on overall housing market momentum.

Existing home sales rebounded in May, rising 3.2% both month over month and year over year to a seasonally adjusted annual rate of 4.17 million units—beating expectations and marking the strongest pace since December. Gains were broad-based, led by the Midwest (+6.4%), followed by the South and Northeast, while the West was flat. On a year-over-year basis, growth was strongest in the South and West, although the Northeast lagged. Single-family home sales continued to drive activity, rising 3.5%, while condo/co-op sales were flat. Home prices remained resilient, with the national median price up 1.3% year over year—extending a 35-month streak of gains.

 

Despite the pickup in sales, the housing market continues to face structural headwinds, including elevated mortgage rates, limited existing home supply, and homeowners locked into lower-rate mortgages. Inventory increased modestly to 1.55 million units, with months’ supply holding steady at 4.5 months, still below pre-pandemic levels. Buyer composition shifted slightly, with first-time buyers increasing to 35% of transactions, while investor activity declined. Homes are selling faster, with median days on market falling to 29 days. Mortgage rates remain a key constraint, averaging 6.44% in May and rising to 6.52% in early June.

 

CPI rose 0.5% in May, driven largely by energy and shelter, while underlying inflation showed signs of easing as core goods softened and services moderated—pointing to still-elevated but gradually stabilizing price pressures.

Consumer prices rose 0.5% month over month in May, in line with expectations and slightly below April’s 0.6% increase, with energy and shelter accounting for the bulk of the gains. On a year-over-year basis, inflation accelerated to 4.2%, the highest since April 2023. Gasoline alone contributed nearly 60% of the monthly increase, highlighting the continued influence of energy prices on headline inflation.

 

Food inflation showed signs of moderation, with overall prices rising just 0.2% and grocery prices up only 0.1%, a sharp slowdown from April. While some categories like beverages, produce, and baked goods posted gains, declines in meats and dairy helped offset upward pressure. Energy prices continued to climb, rising 3.9% month over month and 23.5% year over year, driven by strong increases in gasoline and other fuel-related components.

 

Underlying inflation trends were more mixed but generally improving. Core goods prices declined slightly, suggesting easing tariff-related pressures, while core services inflation moderated, with shelter costs cooling and some strength in travel and recreation services. Core CPI came in softer than expected at 0.2% month over month, indicating that broader inflation pressures remain contained. Overall, the report points to energy-driven inflation, with underlying categories showing gradual signs of stabilization despite resilient consumer demand.

 

PPI rose sharply in May, driven primarily by a surge in energy-led goods prices, while mixed underlying trends—with cooling core PPI but rising super core measures and rising intermediate demand prices—point to persistent upstream inflation pressures despite some moderation in services.

Wholesale prices rose a stronger-than-expected 1.1% month over month in May, matching April’s revised rise and pushing year-over-year PPI to 6.5%—its highest since late 2022. The increase was driven largely by goods prices, particularly energy, highlighting persistent and elevated inflation pressures at the wholesale level.

 

Goods prices surged 2.8%, the largest increase on record, led by a sharp 10.7% jump in energy, with gasoline alone rising 23.4% and accounting for more than half of the increase. Food prices posted a modest 0.6% gain, with significant volatility across categories, while core goods (excluding food and energy) rose 0.8%, signaling underlying firmness. In contrast, services inflation moderated to 0.3%, with strength in portfolio management offset by declines in trade margins and slower growth in transportation services.

 

Underlying inflation signals were mixed. Core PPI cooled to 0.4% month over month, indicating some easing, while super core PPI—excluding volatile food, energy, and trade services—accelerated to 0.8%, pointing to broader inflation pressures beyond energy and trade. Despite some moderation in select components, rising intermediate demand prices suggest persistent upstream cost pressures that could continue to pass through to consumer prices in the months ahead.

 

Real earnings declined for a third consecutive month in May, as inflation continued to outpace nominal wage growth, eroding purchasing power despite steady gains in pay.

Real earnings declined for a third straight month in May, though at a slower pace, as modest gains in nominal wages were offset by higher inflation. Real average hourly earnings fell 0.1% and real weekly earnings declined 0.2% month over month, while on a year-over-year basis, real hourly and weekly earnings dropped 0.7% and 0.4%, respectively. Despite steady nominal wage growth, elevated inflation continues to erode purchasing power, posing a potential headwind to consumer spending and overall economic momentum.

 

Weekly initial and continuing jobless claims edged higher but remain below year-ago levels, signaling modest softening but a still-stable labor market overall.

Weekly initial jobless claims rose by 4,000 to 229,000 for the week ending June 6, slightly above expectations, likely reflecting seasonal volatility tied to school summer breaks, while the four-week average edged up to 219,000—indicating continued stability in the labor market. Continuing claims increased by 24,000 to 1.795 million, the highest since April but well below year-ago levels, with the insured unemployment rate holding at 1.2%, further reinforcing that while claims have ticked up modestly, overall labor market conditions remain steady.

 

Markets posted modest gains despite volatility, as easing U.S.–Iran tensions drove a rebound in equities, a sharp drop in oil prices, lower Treasury yields, and pushed out Fed rate hike expectations.

Equity markets posted modest weekly gains but experienced significant volatility, driven by shifting geopolitical developments. Early declines—triggered by escalating U.S.–Iran tensions—were quickly reversed after signs of de-escalation and a potential diplomatic agreement lifted investor sentiment. This shift, along with the record-setting SpaceX IPO, supported a late-week rebound, with gains broadening beyond mega-cap tech into small caps, as the Russell 2000 outperformed significantly.

 

Oil prices declined sharply—by roughly 6%—as easing geopolitical risks reduced supply concerns and inflation pressures. Both Brent and West Texas Intermediate (WTI) crude oil saw notable drops across the curve, while gasoline prices also moved lower, though they remain well above pre-conflict levels. The pullback in energy prices helped ease market fears despite still-elevated inflation readings earlier in the week.

 

Treasury yields were volatile but ultimately moved lower across the curve, reflecting softer inflation data and reduced geopolitical risk. Markets also adjusted rate expectations, pushing out the timing of potential Fed hikes into early 2027 with lower probabilities of additional tightening. Attention now turns to the upcoming FOMC meeting, where investors expect rates to remain unchanged but will closely watch updated projections and guidance from the Fed.

 

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DETAILED ANALYSIS:

Existing Home Sales – May Update: 

Overview

According to the National Association of Realtors, existing home sales rose 3.2% in May, both month-over-month (MoM) and year-over-year (YoY), to a seasonally adjusted annual rate of 4.17 million units—beating expectations of 4.07 million and up from 4.04 million in April. This marks the strongest pace since December. That said, the housing market continues to face headwinds, including elevated mortgage rates, homeowners locked into low-rate mortgages, increased new home inventory, and a still-constrained supply of existing homes.

 

Regional Month-over-Month Growth

• Northeast: +2.2% to 460,000 units
• Midwest: +6.4% to 1.0 million units
• South: +3.2% to 1.96 million units
• West: Unchanged at 750,000 units

 

Regional Year-over-Year Growth

• Northeast: -8.0%
• Midwest: +2.0%
• South: +5.9%
• West: +5.6%

 

Single-Family and Condo/Co-Ops Sales

• Single-family homes: +3.5% MoM to 3.8 million (+3.3% YoY); median price $434,300 (+1.3% YoY)
• Condominiums and co-ops: Flat MoM at 370,000 (+2.8% YoY); median price $378,200 (+1.7% YoY)

 

Home Prices 

Nationally, the median existing home price rose 1.3% year over year to $429,300, marking the 35th consecutive month of annual price gains.

 

Regional Median Prices and Annual Growth:

• Northeast: $534,900 (+4.2% YoY)
• Midwest: $336,300 (+2.8% YoY)
• South: $373,100 (+1.1% YoY)
• West: $625,900 (-0.7% YoY)

 

Inventory and Supply

• Unsold inventory increased 3.3% MoM to 1.55 million units
• Inventory is up 0.6% YoY but remains below pre-pandemic levels
• Months’ supply of inventory (MSI): 4.5 months, unchanged from April and down slightly from 4.6 months a year ago

 

Buyer Composition and Market Dynamics

• First-time buyers: 35% (up from 33% last month; 30% a year ago)
• All-cash sales: 25% (unchanged from last month; down from 27% a year ago)
• Investor purchases: 14% (down from 16% last month; 17% a year ago)
• Distressed sales: 1% (down from 2% last month; 3% a year ago)
• Median time on market: 29 days (down from 32 days last month; up from 27 days a year ago)

 

Mortgage Rates

• Freddie Mac reported the average 30-year fixed mortgage rate at 6.44% in May, up from 6.33% in April and down from 6.82% a year ago
• Weekly average ending June 11, 2026: 6.52%

 

CPI – May Update: 

The Bureau of Labor Statistics (BLS) reported that consumer prices increased 0.5% month over month in May, down slightly from 0.6% in April and in line with expectations. While inflation remains elevated on a monthly basis, the pace has continued to moderate from March’s spike driven by geopolitical tensions. The May increase was primarily driven by higher energy and shelter costs.

 

Key contributors to the monthly increase:

• Gasoline: 58.6%
  • Shelter: 23.7%
  • Medical care services: 7.6%

 

On a year-over-year basis, CPI rose 4.2% in May, up from 3.8% in April, marking the highest level since April 2023 and in line with market expectations.

 

Food Prices

Food prices – which include both food at home (grocery) and food away from home – moderated to 0.2% month over month in May, down from 0.5% in April. Grocery prices rose just 0.1%, a notable slowdown from 0.7% the prior month, with three of six major categories posting increases.

 

• Nonalcoholic beverages: +0.6% (coffee and tea +1.1%)
• Fruits and vegetables: +0.2% (apples +2.4%, lettuce +16.4%)
• Cereals and bakery products: +0.4% (biscuits/rolls/muffins +4.7%)

 

Tomato prices declined 6.1% after sharp increases in March and April, reflecting some easing in prior supply constraints.

 

Two categories declined:

• Meats, poultry, fish, and eggs: -0.2% (beef -1.6%), though beef prices may face upward pressure amid supply constraints and recent livestock screwworm concerns
• Dairy products: -0.6% (cheese -2.9%)

 

Egg prices rose 4.0% month-over-month but remain sharply lower year-over-year (-35.2%).

 

Food away from home rose 0.3% in May, up from 0.1% in April. On an annual basis, food inflation remains moderate at 3.1% (groceries +2.7%, food away from home +3.5%).

 

Energy Prices

Energy prices—which include both energy commodities and energy services—increased 3.9% month over month in May, up slightly from 3.8% in April. The increase was primarily driven by energy commodities, including a 7.0% rise in gasoline prices, along with gains in fuel oil (+3.8%) and propane, kerosene, and firewood (+2.5%).

 

On the services side, natural gas prices declined further (-0.5%), while electricity prices rose 0.6% month over month, moderating from a sharp 2.1% increase in April.

 

On a year-over-year basis, energy prices rose 23.5%, led by continued upward pressure on gasoline and fuel oil.

 

Core Goods Prices (Excluding Food & Energy)

Core goods prices declined 0.1% month over month, down from flat in April, with deflation across half of the major categories—suggesting tariff-related pressures are easing.

 

Declines were seen in:

• Household furnishings: -0.2%
• Transportation commodities: -0.1%
• Medical care commodities: -0.7%
• Recreation commodities: -0.1%

 

Notable increases included:

• Sporting goods: +0.7%
• Major appliances: +2.1%
• Jewelry: +3.7%
• Cigarettes: +1.2%

 

Apparel inflation slowed to 0.3% from 0.6% in April. Used vehicle prices edged up 0.1%, while new vehicle prices declined for a second consecutive month.

 

Computer prices rose 0.2% (vs. 0.9% in April), while software and accessories were flat after a sharp April increase of 5.0%. This moderation should help ease pressure on PCE inflation (the Fed’s preferred inflation measure), where these categories carry greater weight.

 

Core Services Prices (Excluding Energy)

Core services inflation moderated to 0.3% month over month, down from 0.5% in April.

 

Shelter, which accounts for roughly 24% of CPI, rose 0.3%, cooling from 0.6% in April (partly reflecting a prior one-time measurement adjustment following last year’s government shutdown).

 

Other notable moves:

• Airline fares: +2.7% (+26.7% YoY), driven by fuel costs
• Hotels: +0.5%, extending a four-month streak, likely supported by seasonal travel and World Cup-related demand
• Delivery services: +2.6%, marking a third consecutive strong increase due to fuel costs
• Recreation services: +0.5%, with gains in pet services, sporting events, and streaming services

 

Overall, services data continues to reflect resilient consumer demand.

 

Core CPI (Excluding Food & Energy)

Core CPI rose 0.2% month over month in May, down from 0.4% in April and below market expectations of 0.3%. On a year-over-year basis, core CPI increased 2.9% in May, up slightly from 2.8% in April and in line with market expectations.

 

The May report highlights elevated energy-driven inflation alongside improving underlying trends. Price pressures have not broadly spilled over into core goods or non-energy services, and tariff-related effects appear to be fading.

 

At the same time, consumers remain resilient, though increasingly reliant on savings and credit. Importantly, most household essentials—outside of gasoline—are showing signs of moderation, with grocery and utility prices remaining relatively contained.

 

PPI – May Update: 

The BLS reported that the Producer Price Index (PPI) for final demand increased 1.1% month over month in May, exceeding market expectations of a 0.7% increase and matching a revised 1.1% gain in April (down from 1.4%).

 

April’s increase was driven primarily by goods prices, which accounted for 67.5% of the total monthly gain, largely reflecting higher energy prices that contributed 51.3% of the increase.

 

On a year-over-year basis, headline PPI rose 6.5%, slightly above expectations of 6.4% and up from a revised 5.7% in April (down from 6.0%). This marks the highest annual increase since November 2022 and highlights intensifying wholesale inflation pressures, largely driven by elevated energy costs.

 

Goods Prices

Goods prices, which include food and energy, increased 2.8% month over month in May, following a 1.9% gain in April. This marks the largest increase since the series began in December 2009.

 

The increase was driven primarily by energy prices, which surged 10.7% and accounted for 76% of the overall goods increase. Gasoline prices rose 23.4%, contributing more than half of the total gain. Additional increases were seen in diesel fuel, jet fuel, natural gas liquids, industrial chemicals, and plastic resins.

 

Food prices rose 0.6% in May, the largest increase in three months, but contributed only modestly to overall goods inflation. Beneath the surface:

• Fresh fruits and melons: +8.7%
• Grains: +10.2%
• Pork: -10.1%
• Eggs: -3.4% (third consecutive decline)

 

Excluding food and energy, core goods prices increased 0.8% month over month, up from 0.7% in April and the strongest gain since April 2022.

 

Pricing for technology-related goods was mixed:

• Electronic components and accessories: -0.6% MoM (+26.9% YoY), declining for the first time in over a year
• Computers and related equipment: +0.3% MoM (+6.5% YoY)

 

Services Prices 

Services prices increased 0.3% month over month in May, down from 0.7% in April, signaling some moderation.

• Portfolio management: +4.8%, contributing over 40% of the monthly increase, driven by strong equity market performance
• Trade services: -1.1%, reflecting narrower retail and wholesale margins, including a sharp 11.9% decline in fuels and lubricants retailing margins
• Transportation and warehousing: +2.6%, down from 3.8% in April, driven by higher truck freight and airline fares due to fuel costs

 

The decline in trade services suggests that tariff-related pass-through pressures may be nearing an end.

 

Services excluding trade, transportation, and warehousing rose 0.7% month over month. Overall, services inflation showed signs of moderation.

 

Core and Super Core PPI

Core PPI (excluding food and energy) increased 0.4% month over month in May, down from 0.7% in April and below expectations of 0.5%. On a year-over-year basis, core PPI rose 4.9%, unchanged from April.

 

Super core PPI (excluding food, energy, and trade services) increased 0.8% month over month, up from 0.5% in April and above expectations of 0.4%. On a year-over-year basis, it rose to 5.1%, up from 4.4% in April—the highest since October 2022—indicating broader underlying inflation pressures beyond energy and trade

 

Wholesale inflation remained elevated in May, with price pressures continuing across the value chain, led by energy. At the same time, some underlying measures—particularly trade services and core PPI—show signs of moderation.

 

However, rising intermediate demand prices, which accelerated to 3.5% in May from 2.7% in April, point to persistent upstream cost pressures that could continue to feed through to consumer prices in the months ahead.

 

Real Earnings – May Update:

The BLS reported that real earnings—wages adjusted for inflation—declined again in May for a third consecutive month, though at a more moderate pace than in April and March. Real average hourly earnings fell 0.1% month-over-month, following a 0.5% decline in April, as a 0.3% increase in nominal wages was more than offset by a 0.5% rise in CPI.

 

Real average weekly earnings declined 0.2% month-over-month in May, matching April’s decline. This reflected unchanged average weekly hours and a 0.3% increase in nominal weekly earnings, which was again more than offset by the 0.5% increase in CPI.

 

On a year-over-year basis, real average hourly earnings fell 0.7% in May, down from -0.3% in April, reflecting a 3.4% increase in nominal wages alongside a 4.2% rise in consumer prices. With average weekly hours up 0.3% and nominal weekly earnings rising 3.7% from a year ago, real average weekly earnings declined 0.4%, compared to a 0.2% decline in April.

 

The continued erosion in real wage growth—despite steady nominal gains—highlights ongoing pressure from elevated inflation on household purchasing power, which could weigh on consumer spending and broader economic momentum if geopolitical tensions persist.

 

Weekly Jobless Claims – Week Ending June 6:

The Labor Department reported that initial jobless claims rose by 4,000 to 229,000 for the week ending June 6, up from 225,000 the prior week and above expectations of 220,000—likely reflecting typical volatility around school summer breaks, as some states allow non-teaching staff to file for unemployment during extended breaks. This marks the highest level since early February, al-though claims have remained below year-ago levels for the seventeenth consecutive week. The four-week moving average increased by 4,250 to 219,000, suggesting the labor market continues to hold steady.

 

Continuing claims, which measure the number of individuals receiving unemployment benefits, increased by 24,000 to 1.795 million for the week ending May 30, coming in slightly above expectations. While this is the highest level since early April, it remains meaningfully below the 1.947 million level seen a year ago. The insured unemployment rate held steady at 1.2%, and the four-week moving average edged up by 4,750 to 1.781 million—again pointing to a labor market that remains broadly stable.

 

 

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WEEKLY MARKET ANALYSIS:

Equity Market

Equity markets ended the week with modest gains, but the path was anything but smooth. Early in the week, stocks sold off sharply following heightened geopolitical tensions—triggered by a U.S. Apache helicopter being downed by an Iranian drone and subsequent U.S. retaliatory strikes near the Strait of Hormuz on Tuesday and Wednesday.

 

Sentiment shifted quickly on Thursday, with equities rebounding after President Trump announced a pause in planned military action and progress toward a U.S.–Iran memorandum of understanding, including plans for Vice President JD Vance to attend a signing ceremony in Europe.

 

This development improved investor confidence around easing geopolitical risks, lower energy prices, and reduced inflation pressures—even as May consumer and wholesale inflation data came in elevated mid-week. Momentum carried into Friday, supported by the SpaceX IPO, the largest in Wall Street history, which further lifted market sentiment.

 

A notable shift this week was the broadening of market participation. As optimism around a potential U.S.–Iran resolution grew and energy costs eased, investors rotated beyond mega-cap technology names into small caps. The Russell 2000 surged, significantly outperforming large-cap indices.

 

Weekly and Year-To-Date (YTD) Performance Highlights:

• Nasdaq: +0.70% (weekly) & +11.39% (YTD), closing at 25,889
• S&P 500: +0.65% (weekly) & +8.56% (YTD), ending at 7,431
• Dow Jones Industrial Average: +0.66% (weekly) & +6.53% (YTD), closing at 51,202
• Russell 2000: +3.90% (weekly) & +18.62% (YTD), ending at 2,944

 

Oil Market and Gasoline Price

For the week ending June 12, 2026, crude oil prices declined meaningfully—down roughly 6%—primarily driven by easing geopolitical tensions and renewed optimism around a potential U.S.–Iran peace agreement. Brent crude fell $5.76 (6.19%), from $93.09 to $87.33 per barrel, while West Texas Intermediate (WTI) declined $5.66 (6.25%), from $90.54 to $84.88 per barrel.

 

In the futures market, December 2026 Brent crude is priced at $82.58 per barrel, down $2.78 (3.26%) week-over-week from $85.36, while WTI stands at $77.41, down $2.05 (2.58%) from $79.46. Relative to current spot prices, December 2026 Brent has declined by $4.75 (5.44%), while WTI is down $7.47 (8.80%).

 

Further out the curve, December 2027 contracts saw more modest weekly declines, with Brent at $76.36 (down $1.21, or 1.56%) and WTI at $71.86 (down $0.92, or 1.26%). Despite the recent pullback, prices remain well above the pre-conflict low-$60 range.

 

On the consumer side, U.S. average gasoline prices declined by $0.11 to $4.11 per gallon, according to AAA. However, prices remain elevated—up $1.12 (37.67%) from $2.98 per gallon at the onset of the Middle East conflict in late February 2026.

 

According to the Department of Energy, California’s average price for regular gasoline edged down $0.16 (2.68%) to $5.70 per gallon for the week ending June 8. Even with the recent decline, prices remain $1.22 (27.28%) above pre-conflict levels of $4.48 per gallon.

 

Treasury Market

Treasury yields were volatile during the week but ultimately moved lower across the curve, driven by declining oil prices, easing geopolitical tensions tied to a potential U.S.–Iran peace deal, and softer-than-expected consumer and wholesale core inflation data. The 10-year Treasury yield declined to 4.48%, while the 2-year yield fell to 4.09%.

 

Key Treasury Yield Movements:

• 2-year yield: 4.09% (-0.08%)
• 5-year yield: 4.21% (-0.08%)
• 10-year yield: 4.48% (-0.07%)

 

Rate Cut Expectations

In the prior week, markets had fully priced in a single 25 bps rate hike in December 2026, along with an additional 25 bps hike in 2027, with probabilities rising through the year—53% in March, 68% in April, 72% in June, and 73% in July.

 

This week, expectations shifted modestly. Markets are now pricing in a 25-bp hike in January 2027, with only a 20–30% probability of an additional hike thereafter. In effect, rate hike expectations have been pushed out, with December 2026 now reflecting an 82% probability of a 25 bps increase rather than being fully priced in.

 

Looking ahead, the next FOMC meeting is scheduled for June 16–17, 2026. Markets widely expect the Fed to hold rates steady, but the meeting is highly anticipated as new Fed Chair Kevin Warsh presides over what is expected to be a divided committee. The Fed will also release its updated Summary of Economic Projections, including the closely watched “dot plot” outlining the path for future interest rates.

 

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NEXT WEEK’S ECONOMIC CALENDAR:

Key scheduled releases include:

• 6/16 (Tuesday)
  • Housing Starts & Building Permits for May
• 6/17 (Wednesday)
  • Retail Sales for May
  • FOMC Rate Decision
• 6/18 (Thursday)
  • Weekly Initial Jobless Claims & Continuing Claims

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For a visual representation of this week’s economic review, you can view or download the slide deck here:06.12.2026 CBC Weekly Economic Update Presentation Slides

Mark Yoon, CFA CPA
EVP & CFO of Commercial Bank of California

Thomas McCullough
EVP of Commercial Bank of California

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