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- Producer prices rose sharply in May, driven largely by energy costs, though inflation in other categories remained relatively contained.
- May’s inflation report showed headline prices moving higher as energy costs rose, while underlying inflation remained relatively steady and came in below expectations.
- Major central banks are making key interest rate decisions this week and next, with most expected to hold steady while the Bank of Japan moves closer to levels not seen in three decades.
1. Producer Price Inflation Climbs on Higher Energy Costs
Inflation at the producer level picked up in May, with the Producer Price Index rising 6.5% compared to a year earlier, coming in just above expectations and reaching its highest annual reading since late 2022.¹ Energy costs were the primary driver, climbing roughly 37% on a year-over-year basis.¹ Stripping out food and energy, producer prices still rose 4.9% annually, suggesting that underlying price pressures still remained across the broader economy.¹
The combination of persistent inflation and a rebound in job growth will likely keep the Federal Reserve on hold for the time being.² Policymakers may also signal a reduced likelihood of rate cuts at their upcoming meeting, given elevated inflation risks.² A separate consumer price report released last week offered some reassurance, suggesting that inflation outside of energy stayed relatively steady in May.¹
2. Core Inflation Stays Contained Even as Headline Prices Rise
Consumer prices rose 0.5% in May and 4.2% over the prior year, showing the strongest annual reading since spring 2023 according to the latest Consumer Price Index release.³ Energy prices accounted for a significant portion of the increase, jumping nearly 4% for the month.³ Looking past energy, the inflation picture was more encouraging. Core prices, which exclude food and energy, rose 0.2% in May, coming in below expectations, and were up 2.9% from a year earlier.³ Core goods prices declined for the first time in about a year, while services inflation remained modest.³
Altogether, the data suggests that price pressures have not yet spread broadly beyond energy. The Federal Reserve is expected to hold rates steady at its upcoming meeting, though policymakers are likely to signal inflation risks have increased in recent months.⁴ Given the current inflation picture, the threshold for raising rates remains high.⁴
3. Central Banks in Focus as Global Policy Path Comes Into View
The Bank of Canada left its policy rate unchanged on June 10th, and the European Central Bank raised its deposit rate by 0.25% to 2.25% on June 11th.⁵ Focus now shifts to this week, as the Bank of Japan, Bank of England, and Federal Reserve will each hold policy meetings. The Bank of England and Fed are expected to hold rates steady, while the Bank of Japan is anticipated to raise its rate by 0.25% to 1.0%, its highest level since 1995.⁵ This week’s Fed meeting will be the first chaired by Kevin Warsh and will feature updated economic projections.⁵
While inflation has remained above the Fed’s target and energy prices have added uncertainty, policymakers are expected to look past oil-driven price increases for the time being.⁵ Even if some central banks were to raise rates, any new tightening cycles are expected to be brief, particularly if tensions in the Middle East ease and global oil supply normalizes.⁵
The broader global economy appears well positioned heading into the second half of the year. In the United States, job growth has strengthened, layoffs remain limited, and the unemployment rate stands at 4.3%.⁶ In Europe, unemployment is near historic lows, and Japanese manufacturing has shown resilience in recent months.⁵ Against this backdrop, global equity markets continue to offer what we believe are attractive opportunities.
For the period ending 6/12/26.
* Small-cap stocks are represented by the Russell 2000® Index. International stocks are represented by the MSCI EAFE. Bonds are represented by the Bloomberg US Aggregate Bond Index. Oil is represented by WTI Oil (West Texas Intermediate Oil), a benchmark for light, sweet crude oil and a primary measure for pricing oil contracts and futures in the U.S.
Sources
1 U.S. Bureau of Labor Statistics, Producer Price Index News Release, June 2026
2 Federal Reserve Board of Governors, Federal Open Market Committee Meeting Statement, June 2026
3 U.S. Bureau of Labor Statistics, Consumer Price Index News Release, June 2026
4 Federal Reserve Board of Governors, Federal Open Market Committee Meeting Statement, June 2026
5 Bloomberg, Global Central Bank Policy Decisions, June 2026
6 U.S. Bureau of Labor Statistics, The Employment Situation, June 2026
Disclosures
Cary Street Partners is the trade name used by Cary Street Partners LLC, Member FINRA/SIPC; Cary Street Partners Investment Advisory LLC and Cary Street Partners Asset Management LLC, registered investment advisers. Registration does not imply a certain level of skill or training.
Any opinions expressed here are those of the authors, and such statements or opinions do not necessarily represent the opinions of Cary Street Partners. These are statements of judgment as of a certain date and are subject to future change without notice. Future predictions are subject to certain risks and uncertainties, which could cause actual results to differ from those currently anticipated or projected.
These materials are furnished for informational and illustrative purposes only, to provide investors with an update on financial market conditions. The description of certain aspects of the market herein is a condensed summary only. Materials have been compiled from sources believed to be reliable; however, Cary Street Partners does not guarantee the accuracy or completeness of the information presented. Such information is not intended to be complete or to constitute all the information necessary to evaluate adequately the consequences of investing in any securities, financial instruments, or strategies described herein.
Cary Street Partners and its affiliates are broker-dealers and registered investment advisers and do not provide tax or legal advice; no one should act upon any tax or legal information contained herein without consulting a tax professional or an attorney.
We undertake no duty or obligation to publicly update or revise the information contained in these materials. In addition, information related to past performance, while helpful as an evaluative tool, is not necessarily indicative of future results, the achievement of which cannot be assured. You should not view the past performance of securities, or information about the market, as indicative of future results.
A Composite PMI is a single index that tracks economic activity by combining the performance of both the manufacturing and services sectors, providing a comprehensive overview of overall business conditions.
Nothing contained herein should be considered a solicitation to purchase or sell any specific securities or investment-related services. It should not be assumed that any of the securities transactions or holdings discussed were, or will prove to be, profitable.
The Consumer Price Index (CPI) measures the monthly change in prices paid by U.S. consumers. The Bureau of Labor Statistics (BLS) calculates the CPI as a weighted average of prices for a basket of goods and services representative of aggregate U.S. consumer spending. The CPI is a measure of inflation and deflation. The CPI report uses a different survey methodology, price samples, and index weights than the producer price index (PPI).
Additional Disclosures: International and Foreign Securities, Fixed Income Investments, the Consumer Price Index, the Producer Price Index.
Comparative Index Descriptions: The Standard & Poor’s (S&P) 500 Index, The Russell 2000® Index, The NASDAQ Composite Index, The MSCI EAFE Index, Dow Jones Industrial Average® (Dow Jones or DJIA), The Bloomberg Barclays US Aggregate Bond Index (US Agg Bond), The CBOE Volatility Index (VIX). CSP2026001_22
