CACIB on US CPI: Headline Still High, Core More Benign - FJElite

US headline CPI rose 4.25% year-on-year in May, slightly below the 4.30% forecast but a touch above consensus. Core CPI came in at 0.21% month-on-month, softer than consensus, leaving the three-month annualised core pace roughly steady at 3.17% versus 3.20% in April. Within core, goods were relatively soft and still showed little sign of meaningful pass-through from higher energy prices, while services were firmer, with OER and rent stronger than expected.

The main takeaway is that headline inflation is still uncomfortable, but core was softer than feared and did not show broad second-round effects beyond airfares. May likely marks the peak in year-on-year headline CPI, while core inflation is still seen holding in roughly a 2.7-3.0% range through the rest of the year. For the Fed, this is not an especially bad report overall. Headline inflation remains an issue, but the softer core reading should leave most of the FOMC comfortable staying on hold rather than moving back toward near-term rate hikes.