The Diverging Signals Inside Core CPI in May 2026

In this episode of The Economic Forecast Podcast, Lucas and Luna drill into the May 2026 CPI report, which showed headline inflation at 4.2 percent year-over-year, the highest in three years. But they focus on a less discussed detail: the gap between core goods and core services inflation. Lucas explains that while core goods prices have actually been falling for three months, driven by easing supply chains and a stronger dollar, core services inflation remains stubbornly above 5 percent, fueled by rising rents and medical care costs. They explore why this divergence matters for the Fed's rate path, the bond market's reaction, and what it means for consumers. Luna brings in the 10-year breakeven inflation rate at 2.29 percent, which has ticked down, suggesting markets are betting the Fed will eventually tame services inflation. But Lucas warns that if rent inflation doesn't cool by autumn, the Fed may need to hold rates higher for longer, a scenario that could keep the yield curve inverted into 2027. Packed with specific data points and a clear framework, this episode helps listeners understand why 'inflation is high' isn't the full story. #CoreCPI #Inflation #FederalReserve #ServicesInflation #RentInflation #BondMarket #YieldCurve #BreakevenRate #ConsumerPrices #MayCPI #EconomicForecast #Podcast #FexingoBusiness #BusinessPodcast #Economics #MonetaryPolicy #LucasAndLuna #InflationDivergence Keep every episode free: buymeacoffee.com/fexingo