- Core CPI came in light
- Core goods prices slipped…
- …while core services inflation ebbed a touch
- Breadth signals more of a relative price shock this time…
- …versus the pandemic’s generalized inflation
- A record-low core CPI seasonal adjustment factor kinda smells
- Treasury yields fell…
- …but escalating tensions in the Middle East restrained the reaction
- US CPI / core CPI, m/m %, SA, May:
- Actual: 0.47 / 0.21
- Scotia: 0.4 / 0.3
- Consensus: 0.5 / 0.3
- Prior: unrevised from 0.6 / 0.4
This was the inflation report that Chair Warsh was dreaming about. Soft underlying inflation and details motivated a slightly lower US 2-year Treasury yield. Markets may be holding back in their reaction perhaps because escalating tensions in the Middle East are overshadowing data with conflict and supply chain challenges likely to persist.
Core CPI inflation at 0.21% m/m SA climbed down from a gain of about double that the prior month, indicating little to no sustained pass through of the energy shock into underlying inflation. Chart 1 shows the annualized m/m changes.
Breadth improved ever-so-slightly with a touch less widespread price pressures (chart 2). With about one-third of the CPI basket rising by over 4% and about half over 3% y/y, Chair Warsh may be inclined to view pressures as more contained and much less widespread than coming out of the pandemic. That augurs well for him viewing today’s circumstances as more about a relative price shock than widespread generalized inflation.
Little pass through is particularly evident in core goods prices (ex-food and energy) that remain very tame. They slipped by -0.1% m/m SA in May and have been basically flat for four months now (chart 3).
Core services prices (ex-shelter and energy prices) were also a bit tamer than the prior month at 0.26% m/m SA. They have been all over the map this year but the three month moving average of 0.26% m/m SA is reasonably contained relative to some of the months (chart 4).
While the seasonally unadjusted core price gain was relatively high compared to like months of May in history (chart 5), this was tamped down by a low seasonal adjustment factor (chart 6). In fact, it’s the lowest SA factor in modern times and the second lowest in history behind only May 1969. That carries with it a bit of the scent of a public washroom. Have I mentioned lately how little trust I have for US data on jobs and inflation? There, just did.
Charts 7–19 offer further breakdowns.
Please also see the accompanying table for further details including micro charts.
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