#US May CPI Data#
US CPI increased by 0.1% month-over-month (+4.0% year-over-year), while core CPI rose by 0.4% month-over-month (+5.3% year-over-year).
From the perspective of CPI, this data came in below expectations primarily due to the drag from the energy sector (-3.6% month-over-month) (as shown in Figure 1 below). In contrast, March's CPI also underperformed expectations because of the energy sector (-3.5% month-over-month), but rebounded the following month. Therefore, the weaker-than-expected CPI this time should not overly influence market sentiment, and focus should remain on core CPI.
Core CPI +0.4% month-over-month met expectations.
Notably, housing costs, which increased by 0.4% in April, rebounded further to 0.6% in May. Specifically, rents increased by 0.5% month-over-month, and hotel accommodations recovered from -3% to +1.8%, driven by an overall recovery.
Additionally, transportation services increased by 0.8%, diverging from some forward-looking indicators in the current economic data.
The Fed was well-prepared for such data. In the Beige Book released two weeks ago, the Fed noted that the banking crisis did not lead to the expected credit crunch but rather a credit squeeze. Thus, the impact of banking events on the economy is not significant, with estimates suggesting less than 25 basis points (vs. expectations of 50 basis points). Failing to accelerate this cycle means that as we approach a possible terminal rate, the data is increasingly showing divergence without a clear trend pointing towards 'recession' or 'soft landing.' This casts uncertainty over the outlook for core inflation, leaving the Fed to...