The CPI inflation numbers for May are in and they beat expectations, as per my previous article. My take had been that the April (month-over-month) print of 9% (all numbers annualized) could have been an outlier but the survey forecast of 4.8%1 was too low. The actual number has come in between the two at 7.7%.
Another useful number in the report is the CPI ex-food and energy which has rolled in at 8.8% (again m-o-m, annualized) vs survey expectations of 5.8%. This is an important number because food and energy are volatile. Removing them helps de-noise the trend.
The year-over-year (YoY) CPI came in at 5% vs expectations of 4.7%. I do not think that number is important to markets because the CPI in May 2020 was suppressed due to pandemic-related lockdowns. It is also unimportant because the YoY print contains mostly known data (11 out of 12 months) which are already priced in. I really don’t know why some people fixate on YoY numbers.
Inflation has come in between expectations and the April print. This is no-man’s land and it will be interesting to see the market action today. So far S&P futures are up, but so are bond yields and inflation expectations. The long near-VIX short far-VIX spread is actually slightly up or flat, so that is vindication for me.
To break the monotony, here’s a not very scientific, but revealing, twitter poll. Please add your vote!
Traditional items such as gold, food, oil and guns are still favored by 86% of the people in an extreme scenario. I was slightly surprised by Gold’s strong showing as the leader of the pack.
The 14% with crypto assets may not find takers after the apocalypse.
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Late yesterday some economists raised their forecast, so the final survey number was more like 5.5% which is more than the 4.8% at the time of my writing.