US Headline CPI rose 0.31% on the month, whilst core inflation increased by 0.29%, with consensus at 0.4% and 0.3%. Admittedly we missed this report with our forecasts being 0.45% and 0.38% respectively, and we’ll head back to the drawing board to rethink our overall CPI thesis.

While Core CPI came in right on consensus, the miss in headline inflation is great news for rate cut hopes in the short-term, but this better not be a one-off for cuts to come into play from the Fed. The Powell indicator (core services ex housing) printed at levels too hot for comfort, and most annualized metrics still print at levels >3%, which is not comforting if you want to cut rates. However, the relief this print implies for USD-rates will feed right into the loose financial conditions for now, which should be positive for risk assets going forward.  

In general, April was a weak month overall across our live-gauges of the US economy, and the CPI was no exception. Food and shelter, which we were banging the drum on, showed no signs of reacceleration despite the data seen in PPI and other forward-looking indicators for the 2 components, and transportation services cooled, which have been a concern over the past few months. However, May is currently looking much stronger which is concerning for the path ahead. It would still take 6 consecutive 0% MoM prints to get inflation under 2% on a YoY basis (chart 1.b).

Chart 1.a: Dovish report overall – long risk!