US Inflation Continues the Upside Momentum, Jumping to 8.6%
CPI inflation jumped to 8.6% in May against 8.3% expected, which has turned the risk sentiment off in financial markets again
Inflation continues to increase, and probabilities are that it will increase further as petrol prices keep increasing in petrol stations, with WTI crude Oil trading above $120/barrel. Other prices are also increasing, as producer inflation (PPI) continues to remain high, which has lowered company profits as we saw last month.
But eventually, businesses will transfer these costs to the final consumer, so inflation will keep increasing in the coming months. Given these numbers, you have to price in the possibility of some very aggressive Fed moves and tightening into a recession is close to becoming the baseline.
US May CPI Inflation Report
- US May CPI YoY +8.6% vs 8.3% expected
- April CPI YoY was 8.3%
- CPI MoM May +1.0% vs +0.7% expected
- CPIMoM April was 0.3%
- CPI index at 292.296 points vs 291.661 prior
- Full report
Core CPI:
- US CPI May YoY 6.0% vs 5.9% expected
- CPI MoM April was 6.2%
- CPI MoM May was +0.6% vs +0.5% expected
- CPI MoM April was+0.6% prior
Details:
- CPI energy MoM +3.9% vs -2.7% prior
- Gasoline +4.1% vs -6.1% prior
- New vehicles MoM +1.0% vs +1.1% prior
- Used vehicles +1.8% vs -0.4% prior
- Owners’ equivalent rent +0.6% vs +0.5% prior
- Food +1.2% vs +0.9% prior
- Real weekly earnings MoM -0.7%
I suspect much of the risk-averse price action on Thursday was related to jitters ahead of this report but those jitters were confirmed. This is a terrible report with inflation rising 1.0% in the month in a broad-based way.
Ahead of the report, the FED funds futures market was largely pricing in a path of 50/50/50/25 at the four upcoming meetings, starting with the June 15 get-together. The odds of a fourth 50 bps hike in November are now at 36% and the terminal rate at year-end is just shy of 3.00%.
Right now, that pricing is tough to lean against. This is the last big data point before next week’s FOMC and Powell can’t come out and try to slow roll 8.6% inflation that’s increasing at 1% a month. US gasoline prices hit a new high yesterday so there’s more in the pipeline, even if that’s out of the FOMC’s control. Stock futures have fallen sharply on this report (SPX -46) and the US dollar is higher with EUR/USD falling through 1.0550.
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