US CPI accelerated from 3.8% yoy to 4.2% yoy in May, matching expectations and reaching its highest level in three years as the energy shock continued to work its way through the economy. However, the details of the report were somewhat slightly less alarming than feared. Core CPI edged up from 2.8% yoy to 2.9% yoy, also in line with expectations, while monthly core inflation slowed from 0.4% mom to 0.2% mom, coming in below forecasts of 0.3% mom.
Energy remained the dominant driver of inflation pressures. The energy index surged 23.5% yoy and rose another 3.9% mom in May following gains of 10.9% mom in March and 3.8% mom in April. According to the Bureau of Labor Statistics, energy accounted for more than 60% of the monthly increase in headline CPI. Food prices rose a more moderate 3.1% yoy.
For markets, the report is unlikely to dramatically alter the Fed outlook. The jump in headline inflation reinforces concerns that higher energy prices are feeding into the broader economy. However, the softer monthly core reading should provide some reassurance that underlying inflation pressures are not accelerating as rapidly as feared.
| Indicator | April | May | Forecast |
|---|---|---|---|
| CPI Y/Y | 3.8% | 4.2% | 4.2% |
| Core CPI Y/Y | 2.8% | 2.9% | 2.9% |
| CPI M/M | 0.6% | 0.5% | 0.5% |
| Core CPI M/M | 0.4% | 0.2% | 0.3% |
| Component | May Y/Y | May M/M |
|---|---|---|
| Energy | 23.5% | 3.9% |
| Food | 3.1% | 0.2% |
