Introduction
As data on cooling inflation was released, the market briefly welcomed the dawn of a policy shift. However, this light cannot penetrate the fog of global political and economic uncertainty. The political gamesmanship in an election year is heating up, fiscal pressures are continuously mounting, and trade conflicts are brewing, causing the already fragile market sentiment to become conservative again. When risks loom over the future, funds are quietly shifting towards safe-haven assets like gold, seeking the next stable foothold.
Inflation Trend: Both CPI and PPI are cooling down.
U.S. CPI data for May unexpectedly weakened, further reinforcing the trend of easing inflation. The overall monthly increase in CPI was only 0.1%, lower than the expected 0.2%; the annual growth rate was 2.4%, although higher than the previous value of 2.3%, it is still lower than the market estimate of 2.5%. The core CPI also rose only 0.1% month-on-month, far below the expected 0.3%, indicating that internal price pressures have significantly eased.
The main driving factor of core inflation still comes from housing. In May, the monthly increase in housing rent remained at 0.27%, but the annual growth rate of nearly 3.9% is the lowest level since the end of 2021. The adjustment of housing costs has slowed down, but its weight in the CPI basket remains high, making the correction of core service prices still relatively slow, becoming a key resistance for inflation to fall back to the 2% target.
It is worth noting that May marked the third time since 2022 that the annual growth rate of service inflation fell below 4%, providing improvement signals for the overall price trend. However, looking at the seasonally adjusted monthly increase, both May and April rose by 0.3%, indicating that while core pressure has eased in the short term, there has not been a rapid decline. In addition, although the U.S. announced in April a new round of tariffs on some imported goods from China, Canada, and Mexico, the current CPI data does not show a significant rebound in goods inflation, indicating that the transmission of this round of tariff policy to the final consumer level is not yet significant.
In May, PPI increased by 2.6% year-on-year, slightly lower than market expectations, indicating that inflationary pressures at the production end continue to ease. The year-on-year growth rate of core PPI dropped to 3.0%, the lowest level since August 2024, also lower than the estimated 3.1%; the overall PPI increased by only 0.1% month-on-month, continuing the easing trend of CPI, strengthening market expectations that the Federal Reserve may return to continue cutting rates in the second half of the year.
In detail, commodity prices performed moderately, with PPI increasing by 0.2% month-on-month, mainly driven by core commodities. Food prices rose slightly by 0.1%, while energy prices remained flat. For instance, a significant drop of 8.2% in jet fuel and a weakening in pork prices offset the increases in tobacco and coffee prices. In terms of intermediate goods, the prices of unprocessed goods decreased by 1.6%, with natural gas prices plummeting by 18.7%, indicating that upstream costs have not rebounded, and the pressure on subsequent consumer prices is relatively limited. In the services sector, PPI increased by 0.1%, mainly supported by a 0.4% rise in trade profit margins, especially a substantial increase of 2.9% in wholesale profits for machinery and vehicles. However, core service prices excluding trade, transportation, and warehousing remained unchanged, with airline ticket prices declining by 1.1% and financial services also being weak, indicating that overall service inflation is still restrained.
Despite data showing a clear slowdown in inflation trends, U.S. companies' profit margins are still under pressure. Many companies choose to absorb rising costs themselves, especially amid fluctuations in tariffs and raw material prices, without fully passing the pressure onto consumers, reflecting that terminal demand is still not strong enough. In other words, while the easing of price pressures is beneficial for overall economic stability, it also highlights the contradiction between corporate profitability and consumer spending power.
Labor Market: Unemployment claims data signals a slowdown.
According to data from the U.S. Department of Labor, for the week ending June 7, 2025, the number of initial unemployment claims was 248,000, unchanged from the previous week and slightly above the expected 243,000. This data is the highest since October 2023 and has exceeded expectations for two consecutive weeks. More notably, the number of continuing unemployment claims rose to 1.956 million, significantly higher than the previous value of 1.902 million and the estimate of 1.91 million, reaching a high point since the end of 2021, indicating that it is becoming increasingly difficult for the unemployed to return to the workforce, and corporate hiring is becoming more conservative.
Although the unemployment rate remains low, employment data further confirms that the market is transitioning from overheating to cooling, which will help suppress wage inflation pressure. Coupled with recent soft price data, this is favorable for the Federal Reserve to consider starting rate cuts in September. However, attention should also be paid to whether employment weakness deteriorates into a cooling of domestic demand and a decline in business confidence. According to current FedWatch data, the probability of a rate cut in June is almost 0%; the probability of a 25 basis point cut in July is 23%; and the probability of a 25 basis point cut in September has risen to about 57%.
Optimism about easing inflation cannot hide the rising policy risks, and safe-haven demand pushes gold to challenge high points again.
Although the simultaneous release of CPI and PPI data provides optimistic signals, further enhancing market expectations that the Federal Reserve may return to continue cutting rates in September. However, the uncertainty of tariff policies under Trump's potential return gradually intensifies over time, leading to significant fluctuations in corporate and market expectations about U.S. economic policy prospects, with the overall policy uncertainty index reaching a new high since 1984. Against this backdrop, the demand for capital to seek safety is heating up, and gold prices are technically poised to challenge historical highs again, indicating that the market is highly vigilant about the deterioration of the U.S. fiscal deficit, the weakening of the dollar, the rise in long-term bond yields, and potential stagflation risks.
It is worth noting that China, as the world's largest physical gold consumption market, has seen a significant rise in gold ETF holdings recently, reflecting the market's increasing confidence in rising gold prices. A large influx of funds into ETFs will drive issuing institutions to increase holdings, further boosting physical demand, providing strong support for gold prices on the Shanghai Futures Exchange (SHFE). As changes in gold ETF holdings often lead price fluctuations, they serve as an important indicator for observing market expectations, providing high predictive reference value for understanding future gold price trends.
Conclusion
In summary, although the slowdown in inflation brings short-term hopes for easing, the deterioration of structural deficits, risks from geopolitical trade conflicts, and potential policy fluctuations triggered by Trump’s possible return to the political scene are injecting deeper safe-haven demands into the asset market. Gold is expected to benefit continuously from this round of policy uncertainty re-pricing driven by both domestic and foreign capital.
This report is for informational sharing purposes only and does not constitute any form of investment advice or decision-making basis. The data, analysis, and opinions cited in the text are based on the author's research and public sources, and may be subject to uncertainty or change at any time. Readers should exercise caution in making investment judgments based on their own circumstances and risk tolerance. For further guidance, it is recommended to seek professional advisory opinions.