Headline CPI Inflation Higher Than Expected, Core Lower

Headline CPI inflation in May was slightly greater than expected rising +.7% MoM (consensus +.6%) and +2.7% YoY (consensus unchanged at +2.6%). This was the largest increase in the headline figure on a monthly basis since September 2005. Core CPI, which excludes food and energy, rose +.1% MoM (consensus +.2%) and +2.2% YoY (consensus unchanged at +2.3%). There were no revisions to the April data. The CPI figure is considered to be the broadest inflation figure because it includes goods and services.

As anticipated, energy prices rose a strong +5.4% MoM, with gasoline gaining +10.5% MoM to a record high. Owners equivalent rent continues to decelerate to +.1% MoM in May, down from +.3% MoM in March. Food and beverage prices rose +.3% MoM, as did medical care. Rising transportation costs (+2.8% MoM) had the strongest impact on the rising CPI headline figure, after energy, in May, while auto costs fell -.2%..

The market liked the decline in core CPI inflation to the lowest level since the first quarter of 2006. Ten year Treasury yields fell around 3bp to 5.19% after the number.