May headline CPI slowed by 10bps to 3.3% YoY vs 3.4% expected. Core slowed 20bps to 3.4% vs 3.5% expected. Super Core CPI TURNED NEGATIVE (!) -0.05% MoM - its first drop since Sept 2021 (but that left the YoY level still above 5.0%). Details: CPI data for May 2024 • Inflation was softer than expected in May: headline 0.0% MoM vs +0.1% expected; “core” inflation +0.2% MoM (+0.163% unrounded) vs +0.3% expected • As a result, the yearly headline inflation rate is down to +3.3% (after +3.4% in April) and the “core” inflation rate is down to +3.4% (+3.6% in April), its lowest level in three years. • Inflation is still above the Fed’s target of 2% but the trend toward slower inflation has resumed, after the upside surprises of the first quarter of the year. - Housing (shelter) inflation remains firm, but CPI inflation excluding shelter (+2.1% YoY%) is now back (almost) at the level targeted by the Fed. - Inflation in services, that has been strong in the previous months, is finally slowing down (+0.2% in May vs +0.4% in April and +0.5% in March). - Prices of durable and nondurable goods have declined in May (-0.5% and -0.4% respectively). • Those data confirm our scenario of a gradual disinflationary trend at play in the US, as labor market tensions ease and consumer demand loses some momentum. Impact on the hashtag#Fed • Following the release, and ahead of the Fed’s meeting tonight, the probability of a Fed rate cut in September has increased to 62%, • A Fed rate cut at the November meeting (two days after the US Presidential elections) is now fully priced in. • Future markets also fully price a second rate cut at the December meeting. • After the FOMC meeting tonight (no rate cut expected), Fed’s members will update their economic and rate projections. • Those CPI data are probably a relief for the Fed and will likely prevent hawkish surprises and significant revisions to the upside on the expected path of Fed Fund rates in 2024 and 2025. Source: HolgerZ, Bloomberg