CIBC Research discusses its reaction to today's US CPI print for the month of May.
"Inflation was red-hot in the US in May, as the jump in gasoline prices combined with pressure in food prices to drive a 1.0% monthly advance in total CPI, above the consensus expectation of 0.7%. That left annual inflation at 8.6% vs. 8.3% expected, a three tick acceleration from April. Excluding energy and food prices, core inflation was also hotter than expected, as prices rose by 0.6% m/m (vs. 0.5% m/m expected). Shelter was the single largest contributor to that, as that sub-index posted its largest monthly increase since 2004. Core price pressures were widespread, with some other major contributors being airfares, used and new cars, and apparel, amidst others. While that left annual core inflation two ticks slower at 6.0% (vs. 5.9% expected), the deceleration was driven by base effects," CIBC notes.
"Overall, this adds upside risk to our existing target for fed funds rate. The contribution to inflation from shelter is of key concern for the Fed given its stickiness, and with gasoline prices on a sharply higher trajectory in June, the Fed will remain on track to raise rates by 50bps at next week’s FOMC," CIBC adds.