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Sticky Services Drive Significant US CPI Beat

US DATA
  • Headline CPI bounced from 0.1% to 0.4% M/M (cons 0.2%) and core surprisingly nudged up from 0.57% to 0.58% M/M (cons 0.4%). The latter saw core CPI inflation extend to fresh cycle highs of 6.6% Y/Y, surpassing March’s 6.5%, with various regional Fed measures showing the same upward trajectory.
  • The beat on core CPI was all about services (0.79% M/M from 0.58 which looks like the highest since the early 1980s whilst core goods barely registered with 0.02% from 0.46%.
  • Familiar categories led this surprising core service strength, most notably OER (0.81% M/M from 0.71) and rent of primary residence (0.84% M/M from 0.74) hit new cycle highs vs some analysts looking for very slight moderation.
  • Medical care services, a key component for non-shelter services with a weight close to tenants' rent, also accelerated to new cycle highs at 0.99% M/M (from 0.77) for 8.7% annualized on a 3month rolling basis.
  • If there was a silver lining it was that goods inflation is cooling from improving global supply chains and USD strength, plus the fact that CPI rent measures are expected to catch up with a softer housing market in months ahead.
  • However, yet another month of inflation not just failing to moderate more meaningfully but actually accelerating will be of renewed concern for the FOMC. More thoughts on potential rate implications here.

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