Today’s May US CPI report undershot estimates with -0.1% headline and core price declines, following a big -0.8% April headline drop with a record -0.4% core price decline for a series that extends back to 1947. May CPI declines were rounded from -0.052% for the headline and -0.060% for the core. Another big drop has been seen for apparel prices, of -2.3%, after a -4.7% April plunge and a -2.0% drop in March. This component has contributed significantly to the CPI under-performance since March. Headline and core price weakness shows that the demand shock from closed retail establishments has dominated the supply shocks from supply chain disruptions, though prices will face a June updraft as supply factors become more important, and oil prices rebound.
Transportation prices declined -1.8%, from -5.9% previously. Hence we’re starting to see some of the varying effects from the easing in oil price weakness, with some emerging pressures from supply disruptions.
In June, an upturn for CPI is expected, with a 0.4% headline bounce and a 0.1% core price gain, with an assumed 8% gasoline price increase. The y/y CPI gain should rise to 0.6% from today’s 0.1% y/y May reading. The y/y core price gain should fall to 1.0% from 1.2% in May. This would leave a headline drop in the y/y metric to 0.3% from 0.5%, alongside a y/y core PCE pull-back to 0.9% from 1.0%. The y/y headline gain should sit in the 0.4% area in Q3, while y/y core price gains hover around 0.6%.
The Dollar has printed a tick higher after the CPI data, however the USDIndex remains at the low 96 area. EURUSD idles near 1.1370, off recent highs, while USDJPY was a few points lower under 107.40.
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Andria Pichidi
Market Analyst
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