• US CPI inflation exceeded consensus estimates
  • That drove a significant rates sell-off
  • But the Fed’s narrative is likely set for most of the summer

US CPI, m/m SA // y/y % change, April:
Actual: 0.3 / 8.3
Scotia: 0.3 / 8.3
Consensus: 0.2 / 8.1
Prior: 1.2 / 8.5

US core CPI, m/m SA // y/y % change, April:
Actual: 0.6 / 6.2
Scotia: 0.5 / 6.1
Consensus: 0.4 / 6.0
Prior: 0.3 / 6.5

My what a whippy market we have these days! The FOMC has set the script for most of the summer and yet a slightly firmer than expected set of inflation readings sparked a near riot in fixed income which probably speaks more to wrong-footed positioning into the data. Post release the yield on 2s is about 10bps higher as the curve flattened a touch with 10s about 7bps higher. The dollar initially rallied but is now flat. The S&P is very slightly firmer this morning.

Headline CPI inflation landed above consensus and matched my bottom-up estimates for 0.3% m/m and 8.3% y/y. Core inflation climbed 0.6% m/m and 6.2% y/y which were both above consensus and less so against my guesstimates.

Core inflation is showing no signs of slowing. In fact, very much to the contrary as the seasonally adjusted and annualized m/m rate climbed to 7.05% which is the hottest reading since January (chart 1).

Breadth was high. See chart 2 for the breakdown of prices in y/y terms and chart 3 for the equivalent in terms of weighted contributions to the overall rise. Chart 4 breaks down the basket in m/m SA terms and chart 5 does the same thing in terms of weighted contributions.



Among the drivers were the following:

  • food prices were up by another 0.9% m/m including 1% for 'at home' and 0.6% for 'away from home' food prices which covers things like take-out, dining in, cafs etc.
  • energy prices retreated, but not uniformly so. Overall energy prices fell 2.7% m/m SA with energy commodities down 5.4% m/m and energy services up 1.3%. Within energy services, the driver was a 3.1% m/m rise in utility piped gas that directionally followed the more volatile one-third rise in Henry hub spots. Within energy commodities the decline was driven by gasoline (-6.1% m/m SA all grades) but higher prices for other fuels offset some of this.
  • Gasoline prices were down 6.1% m/m and this should reverse higher in the next report for May.
  • new vehicle prices were up by 1.1% m/m and used vehicle prices slipped by 0.4% for the third consecutive decline.
  • clothing was optional last month with prices down 0.8% m/m.
  • core services continue to be hot, with prices up by another 0.7% m/m. High contact services continue to see significant price gains as firms serving those sectors cash in on pricing power given improved mobility and lowered guards. Within them, airfare prices took flight again and were up another 18.6% m/m. Vehicle rental prices climbed another 0.8 higher. Lodging was up another 1.7%.

Please see the accompanying charts and also the detailed table at the back of this publication that provides a more thorough decomposition of the inflation basket and deviations from recent norms measured using Z-scores.


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