Headline CPI eases up, especially on a monthly reading

Headline CPI for May printed at 4.0% y/y, lower than the consensus forecast of 4.1% y/y and lower than the previous 4.9% y/y. The monthly print impressed at 0.1%, which was lower than the previous months 0.4% and is under target at 1.21% on an annualised basis.

However, the core reading which includes volatile items such as food and energy proved resilient coming in at 0.4% m/m, which was the same as forecast. The y/y number did show some give, printing at 5.3%, which was softer than the previous 5.5%.

The direction of CPI will give the Fed some room to breathe, and a pause is likely this month. A continuation in the trend will further please the Fed and make further hikes this year unlikely, as previous increases finally pass through the transmission mechanism.

Energy prices experienced a decline of 3.6%, which played a significant role in the inflation release. Meanwhile, food prices witnessed a modest rise of only 0.2%.

The most substantial factor contributing to the overall increase in the headline CPI, was a 0.6% upsurge in shelter prices. It is noteworthy that housing-related expenses account for approximately one-third of the index's overall weight.

In other sectors, the prices of used vehicles remained unchanged, maintaining a steady increase of 4.4% since April. Additionally, transportation services experienced a moderate rise of 0.8%.