The rising cost of gasoline pushed the consumer price index (CPI) to +2.8% (Y/Y), and the wholesale producer price index (PPI) to +3.1% (Y/Y). For consumers, gasoline prices increased +1.7% in May, following a +3.0% increase in April, while producers saw a +9.8% increase in May after a -0.4% drop in April. Stripping out the effects of energy and food costs, core CPI inflation increased +0.2% (+2.2% Y/Y) in May, with shelter costs up +0.3%, medical care prices up +0.2%, and new vehicle prices up +0.3%. For producers, removing the contributions from energy and food prices shrunk the monthly PPI increase to +0.3% (+2.4% Y/Y), and removing services as well brought the increase to +0.1% (+2.6% Y/Y). Other than gasoline, there were notable PPI increases in May for trade services (+0.9%), transportation (+0.7%), and health insurance (+2.8%).

Noting strong job gains on average, a pickup in household spending, and continuing strong growth in business fixed investment, the Federal Open Market Committee (FOMC) raised the federal funds rate by 0.25% to 1.75% - 2.0%. The FOMC median longer run predictions were unchanged, but they revised their shorter term economic projections through 2020 by raising expected 2018 GDP from 2.7% to 2.8%,   lowering the predicted unemployment rate to 3.6%  (-0.2%) in 2018 and to 3.5% (-0.1%) in 2019/2020, and projecting inflation through 2020 at 2.1% (+0.2% for 2018, unchanged for 2019/2020). Based on the median of their updated projections, the FOMC predicted two more rate hikes in 2018 (to 2.25% - 2.5%), three rate hikes in 2019 (to 3.0% - 3.25%), and one rate hike in 2020 (to 3.25% -3.5%), with the prediction for longer run rates unchanged at 2.75% - 3.0%.

April’s retail sales gains were revised upwards to +0.4% (+0.2%) and May’s were up +0.8% M/M and +5.9% compared to May 2017. The largest gains were for miscellaneous store retailers, a category which contains florists, pet stores, and used merchandise stores, at +2.7% (7.5% Y/Y), followed by building supply stores at +2.4% (+5.2% Y/Y), clothing stores at +1.3% (+5.9% Y/Y), and general merchandise stores at 1.2% (5.0% Y/Y). General merchandise sales were boosted by a +1.5% (+2.1% Y/Y) gain for department stores, while gains slowed their momentum at nonstore (i.e. online) retailers (+0.1%, +9.1% Y/Y). After a +2.7% increase in April, sales fell for furniture stores (-2.4%, +3.5% Y/Y), while sales fell in both April (-0.4%) and May (-1.1%) for sporting goods/hobby stores (-0.7% Y/Y). Sales increased at gasoline stations (+2.0%, +17% Y/Y), but much of the increase was due to higher gasoline prices.