May CPI

Consumer price index rose 0.218% MoM in the month of May (vs. 0.3% MoM consensus) with strong gains in OER (rent) and medical care inflation.  Nevertheless, Core CPI at 0.203% MoM was largely on-consensus, and financial market attentions were largely focused on Brexit expectations (following the tragic death of U.K. Labour MP Jo Cox) and another sharp decline in oil prices.

Fed policymakers’ current inflation assessment will likely remain unchanged despite persistent strength in rental and medical care inflation (the focus will remain on headline PCE), further more, renewed weakness in market-based inflation compensations will likely support Fed officials’ cautious approach – 10 year TIPS breakevens declined from post-FOMC high of 150 bps to 146 bps (they were near 148 bps pre-FOMC)

Breaking down the May CPI

Month-over-month changes:

• Headline CPI at 0.218% MoM vs. 0.3% consensus and 0.408% prior
• Core CPI at 0.203% MoM vs. 0.3% survey and 0.195% prior
• Owners’ equivalent rent at 0.349% MoM vs. 0.299% prior
• Medical care at 0.346% MoM vs. 0.316% prior
• Apparel at 0.798% MoM vs. -0.253% prior
• New vehicles at -0.102% MoM vs. -0.333% prior
• Energy at 3.782% MoM vs. 3.706% prior

Year-over-year changes:

• Headline CPI at 1.07% YoY vs. 1.1% consensus and 1.14% prior
• Core CPI at 2.24% YoY vs. 2.2% survey and 2.15% prior
• OER at 3.26% YoY vs. 3.15% prior
• Medical care at 3.17% YoY vs. 2.98% prior
• Apparel at 0.58% YoY vs. -0.57% prior
• New vehicles at -0.16% YoY vs. 0.03% prior
• Energy at -10.10% YoY vs. -8.87% prior