Energy Fuels Inflation, Home Sales Improve

Elevated energy and gasoline costs pushed inflation higher in May, while existing home sales reached their fastest pace of the year. Here are the key takeaways.

·       Higher Energy Costs Fuel Inflation

·       Home Sales Post Strongest Pace of 2026

·       Jobless Claims in Focus

Higher Energy Costs Fuel Inflation

Inflation remained elevated in May, with consumer prices rising 0.5% for the month and 4.2% from a year ago. Much of the increase was driven by higher gas and fuel costs linked to ongoing tensions in the Middle East. Excluding food and energy, core inflation was more moderate, increasing 0.2% in May and 2.9% annually.

Price pressures were also evident at the wholesale level. The Producer Price Index (PPI) rose 1.1% for the month and 6.5% year over year, again largely due to higher energy costs. Core wholesale prices increased 0.4% in May and 4.9% annually.

What’s the bottom line? The Federal Reserve is tasked with balancing two goals: controlling inflation and supporting a healthy job market. Rising inflation can make rate cuts less likely, while signs of economic weakness may increase pressure to lower rates.

After three rate cuts late last year, the Fed has held its benchmark Fed Funds Rate steady in 2026. Although the Fed doesn't directly set mortgage rates, its policy decisions play a major role in shaping borrowing costs across the economy.

With inflation concerns still in focus, investors will be watching this week's Federal Reserve meeting – the first led by new Fed Chair Kevin Warsh – for clues about the direction of future rate decisions.

Home Sales Post Strongest Pace of 2026

Existing home sales increased for the second straight month in May, rising 3.2% from April to a seasonally adjusted annual rate of 4.17 million homes, their strongest pace since December. Housing inventory also improved, climbing 3.3% month over month to 1.55 million homes and sitting slightly above year-ago levels.

What’s the bottom line? While inventory is growing, the housing market remains undersupplied compared to historical norms. Still, the recent increase in both inventory and sales suggests more buyers are finding opportunities in today’s market. NAR Chief Economist Lawrence Yun attributed the momentum to improving affordability, noting that mortgage rates remain lower than they were a year ago and are close to their long-term historical average.

Jobless Claims in Focus

New unemployment claims increased for a third consecutive week, reaching roughly 229,000. While that's still a relatively modest level by historical standards, it may not tell the full story. Some workers who have lost jobs are opting for freelance, contract, or gig work rather than filing for unemployment benefits, which could mean labor market challenges are not fully reflected in unemployment claims data.

At the same time, continuing unemployment claims remained elevated at 1.795 million. This suggests that many unemployed workers are spending more time searching for their next opportunity.