The market is trading a tad better after CPI but the details make for a complex picture. The headlines were basically in-line with estimates and core at +0.2% vs +0.3% was a touch soft. Notably though, the unrounded reading was +0.249% so it was right on the cusp.
The relief bounce isn’t a surprise given the market is anxious about runaway inflation that the Fed will be forced to address. This number is still soft enough that Team Transitory 2.0 can hold its breath for another month.
Looking ahead there are notable base effects for the coming months of US CPI:
June 2025: +0.3% drops out
July 2025: +0.2% drops out
August 2025: +0.3% drops out
September 2025: +0.3% drops out
That means steady +0.3% m/m readings will keep inflation at 4.2% but there could be some downward pressure with gasoline currently at $4.161/gallon compared to $4.45-4.50 in May. That’s -7% on gasoline if it holds through month-end, making for the possibility of a negative m/m reading.
On the flip side, as Zero Hedge highlights, the core CPI miss was entirely due to an unexpected plunge in the car insurance index, which tumbled by 1.7% m/m, the biggest drop since covid. Most had expected a modest 0.1%-0.2% drop. Excluding this drop, core CPI would have printed hotter than estimates.
S&P 500 futures are down 0.6% shortly before the open and Treasuries are trading roughly flat on the day. The US dollar sold off on the headline but has come back a bit as the details filter through.
The whole economic week was building up to this print and now we pivot towards the FOMC decision on Wednesday
