US CPI data: unequivocally strong

The Fed will, of course, not place too much emphasis on one month’s data but will triangulate information from multiple sources when considering the state of the economy and underlying inflationary dynamics.

In conjunction with ongoing data consistent with a strong labour market, this report therefore pushes out the date at which the Fed will likely first be able to consider cutting rates again. At the time of writing, futures are pricing just over one rate cut this year, down from 1.5 priced at the beginning of this week. Similarly, the 10-year Treasury yield increased by about 10bps immediately following the report.

Monthly percentage changes in headline, core and super-core (core services ex housing) measures were all greater than the previous month and ahead of expectations. Furthermore, looking at six-month trends shows that inflation increased on all three metrics, with a notable jump from 3.7% to 4.8% in the six-month annualised percentage change in the super-core measure.

For those inclined to take a glass half-full view, the glimmer of inflationary hope that emerged from this report relates to the decline in the year-on-year percentage change in shelter inflation from 4.6% to 4.4%, the third consecutive monthly decline and down from 6.1% in January 2024.

Until we get greater clarity on the medium-term inflation trends, bond yields are likely to remain sticky. Firmer inflation dynamics are also clearly impacting equity investor sentiment, in particular in the US where the combination of more hawkish rate expectations alongside tariff uncertainty has contributed to a rangebound market.

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