Core CPI shows energy price impact on inflation

What happened: Eurozone inflation reached 3.2% in May, driven by a 38.3% surge in energy prices due to Iran war-related supply disruptions. In the U.S., consumer prices rose 4.2% annually in May, the highest in three years, with energy costs up 54.8%. The core personal consumption expenditures (PCE) price index, the Fed's preferred inflation measure, accelerated 0.3% in March. Federal Reserve Bank of Kansas City President Jeffrey Schmid warned against dismissing the oil shock as transitory.

Market impact: Energy prices are driving up inflation, affecting consumers and businesses alike. In the U.S., the sharp increase in energy costs is expected to push the Fed towards a rate hike. In the Eurozone, the ECB is also poised to tighten monetary policy. Companies in energy-intensive sectors may face higher input costs, while those in renewable energy could benefit from increased demand.

What to watch next: The next U.S. CPI print on June 10 will provide further insight into whether inflation is peaking or continuing to rise. The ECB's interest rate decision on June 9 will indicate if they follow through on expectations for a rate hike. Additionally, geopolitical developments around Iran could dictate future energy price movements.