En’Core’

The most important CPI print in recent memory (according to the hype machine) didn’t disappoint. Or at least not if you were in the camp expecting another hot print.

On the heels of April’s “shocker,” the headline gauge rose 0.6% MoM, more than the 0.5% economists expected.

The YoY print was 5%, also hotter than anticipated (figure below) and the highest since a 5.4% read in August of 2008.

Core came in hot as well, printing 3.8% YoY, against expectations for a more benign 3.5% rise.

The index for used cars and trucks jumped 7.3% in May, accounting for around a third of the seasonally adjusted all-items increase. The food index rose 0.4%, on par with April’s increase. The energy index jumped almost 29% YoY.

The 3.8% YoY rise on the core gauge is the hottest since June 1992 (figure below).

While these figures are, of course, distorted, it’s worth noting that this marks the second consecutive outlier. The figure (above) also shows you the monthly change in the YoY print. April’s move was a 10-sigma event. May’s move was massive too. They’re highlighted in purple.

“We’re still comparing price levels in a vibrant re-opening economy with those from 12 months ago when the US was still largely in lockdown and many corporates were slashing prices to desperately generate cash flow,” ING’s James Knightley said, noting that although “the annual rates should start edging lower as we move through Q3… we are not as optimistic as the Fed in thinking this is purely ‘transitory.'”

The MoM surge in core is also concerning, explanations aside. 0.7% is quite the encore from April’s 0.9% leap (figure below).

Anyone under 35 has never witnessed anything close to these prints. Outside of the pandemic and post-pandemic context, the last time monthly core CPI was anywhere near these levels was in the early 80s.

“Many of the same indexes continued to increase, including used cars and trucks, household furnishings and operations, new vehicles, airline fares, and apparel,” the government said. Transportation services costs were up pretty sharply for a second month, while apparel prices rose 1.2% from April. Owners’ equivalent rent rose 0.3% following a 0.2% the previous month. The figure (below) is still worth consideration.

May was “yet another month about the resale of used autos [as] supply chain and chip issues persist,” BMO’s US rates ream remarked, adding that the core-CPI three-month annualized rate is now 8.3% versus 5.6% in April.

“Will this figure change anyone’s mind? Probably not,” Bloomberg’s Cameron Crise wrote, noting that “‘Team Transitory’ can still dismiss the numbers as the residue of bottlenecks and supply shocks.” Apparently, so-called “reopening categories” were responsible for 52% of May’s CPI.

Just ahead of the data, Nomura’s Charlie McElligott wrote that “a second consecutive strong CPI print is capable of waking the reflation ‘animal spirits’ back up after the recent NFP disappointments were interpreted as a resumption of vol-killing ‘Goldilocks 2.0’ macro environment which justifies a dovish Fed.”

You can draw your own conclusions. As one former president was fond of putting it, “We’ll see what happens.”