Everything rallies on soft US inflation report
US equity futures and bonds are on a tear after the May consumer price inflation report showed core price pressures were much softer than expected.
Core CPI was up 0.16% month-on-month, while economists were looking for a monthly increase that rounded up to 0.3%.
S&P 500 equity futures jumped as much as 0.8% and 2-year Treasury yields fell as much as 15 basis points in the immediate aftermath of the news.
Throughout the first quarter, hot inflation readings did not give the Federal Reserve the enhanced confidence it was looking for to tee up rate cuts. The past two prints are steps in the right direction, with Federal Reserve Chair Jerome Powell likely to acknowledge this encouraging development at the press conference that follows today’s interest rate decision and release of updated economic projections.
Importantly, there were a lot of line items within services inflation that decelerated meaningfully or had prices fall outright from April to May on a seasonally-adjusted basis:
Motor vehicle insurance, a component that’s been pushing up services inflation strongly since mid-2022 but is not very strongly related to business cycle, swung from a monthly increase of 1.8% to a decrease of 0.1%, its lowest reading since October 2021.
Recreation services, a more cyclically-sensitive area, fell 0.2% month-on-month, its largest decline since November 2021.
Airfares, a particularly volatile category, saw prices shrink 3.6% on a monthly basis.
Importantly, there were a lot of line items within services inflation that decelerated meaningfully or had prices fall outright from April to May on a seasonally-adjusted basis:
Motor vehicle insurance, a component that’s been pushing up services inflation strongly since mid-2022 but is not very strongly related to business cycle, swung from a monthly increase of 1.8% to a decrease of 0.1%, its lowest reading since October 2021.
Recreation services, a more cyclically-sensitive area, fell 0.2% month-on-month, its largest decline since November 2021.
Airfares, a particularly volatile category, saw prices shrink 3.6% on a monthly basis.
