U.S. Inflation Accelerates in May at Fastest Pace since 2008, Treasury Yields Tick Higher

CPI KEY POINTS:

• May headline CPI in the United States rises 0.6% m/m and 5.0% y/y, beating market consensus.
• Core inflation surges 0.7% on a monthly basis and 3.8% annually, also above investors’ expectations.
• The outsize inflation print pushes treasury yields higher, boosting the US dollar^[1].

Most read: Gold Price Outlook: XAU/USD Eyes Fastest Expected Core Inflation Rate Since 1993^[2]

The Consumer Price Index jumped 0.6% in May and 5.0% on an annual basis, the fastest pace in more than a decade as the economic recovery kicked into high gear and energy costs remained skewed to the upside. Economists surveyed by Bloomberg News had been looking for an increase of 0.5% m/m and 4.7% y/y in the headline print. Meanwhile, core inflation, which excludes food and energy products, rose 0.7% with respect to April and 3.8% over the last 12 months, two tenth of a percent above consensus, driven primarily by a spike in used cars and truck prices.

The table below summarizes the main drivers of the CPI index according to the Bureau of Labor Statistics:

For a long time before the coronavirus crisis hit the world, the United States economy struggled with dormant and weak inflation, but in recent months the trend has reversed dramatically amid reopening pent-up demand, supply bottlenecks, higher commodity prices and base effects. Although policy makers characterize the surge in prices as transitory in nature, some markets participants are skeptical and believe the problem may morph into a long-term predicament and become entrenched if left unchecked by the central bank.

Immediately after the CPI report crossed the wires, US treasury yields began to climb, with the 10-year yield rising 3 bp 1.52%. Meanwhile, the dollar, measure by the DXY index, also ticked higher, although the