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CPI Inflation Rate +3.4%: Back on Track

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Wednesday, June 12th, 2024

This morning brings us the most important market data of the week. Ahead of today’s open, Consumer Price Index (CPI) figures for May are out — down across the board, albeit modestly, from expectations. Pre-market futures blossomed instantly: ahead of the release, the Dow was +28 points, the S&P 500 +6 and the Nasdaq +28 points. Within a minute after the print, the Dow grew tenfold: +240 points. The S&P ramped up to +40, and the Nasdaq reached +180 points.

Headline CPI month over month reached 0.0%, down from the +0.1% expected. This followed a downwardly revised +0.2% for April, suggesting the measured drawdown on consumer prices has gotten back on track after a somewhat turbulent start to 2024. To find a lower monthly print on headline CPI, we’d have to go back to May 2020 — the heart of the Covid pandemic. Core month over month (ex-food and energy prices) came in at +0.2%, the lowest we’ve seen since August 2021.

Headline CPI year over year is also known as the Inflation Rate. This is where most of the attention on consumer prices winds up, and it came in at +3.3% this morning, 10 basis points (bps) below expectations and the best number for tracking dwindling inflation since February of this year, when it was +3.2%. It’s also 10 bps below the previous month’s +3.4% and 20 bps under March’s +3.5%. That was back when inflation looked like it was headed in the wrong direction.

Core CPI year over year came in at +3.4%. This again represents a 10 bps drop from expectations and 20 bps lower month over month. In fact, this is the lowest print we’ve seen since April 2021, right at the foothills of the Great Reopening, which was responsible for bringing in decades-high levels of inflation. While we are back on track as of this morning’s report, we still have plenty of work ahead — say 100 bps or so. The good news here is that we’re moving incrementally rather than erratically.

Energy prices came down -2.7% — including -3.6% for gasoline — while airline fares also dropped -3.6%. New vehicles came down -0.5% last month, and even motor vehicle insurance, which had spiked somewhat recently, is down -0.1%. These numbers are slightly offset by gains in used vehicles, +0.6%, owner’s equivalent rent, +0.4%, and +0.3% in medical commodities. Notable here is that we’re seeing inflation shrink in many of the problem areas we’d seen in past months when inflation was heating up.

We mentioned that pre-markets loved this report. Bond yields also sank immediately on the news: from +4.83% on the 10-year to +4.69% moments later, and from +4.40% on the 2-year to +4.28% following the release. Also, odds for a September interest rate cut has ratcheted up to around 70%, and increased for the November meeting (which comes the day after the General Election) as well. Thus, the Fed’s promised two rate cuts in 2024 is still on the table.

We’ll see if anything changes this afternoon, after the Fed release and Fed Chair Jerome Powell press conference. One thing that’s a lock is that interest rates will not be changed today from the 5.25-5.50% they’ve been at since July of last year. What analysts and other market participants will be paying close attention to is any change in the descriptors for the monetary policy outlook from the Fed. In this afternoon’s column in this space, we will give our extensive impression on what we can expect.

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