**As seen in Risk In The Week report 07/09/23, subscribe at cablefxm.co.uk/reports
May headline consumer prices in the U.S. eased to 4.0% Y/y from the prior 4.9%, this was slightly below the consensus median of 4.1%. The core metric printed at 5.3% Y/y, this was above market expectations of 5.2%, while the figure is outpacing the headline, both are way off last year’s peak. Food prices accelerated on the month by 0.2% from the prior 0.0%, energy declined by 3.6% following a rise of 0.6%, shelter prices advanced by 0.6% vs the prior 0.4%. Much of the decline was due to energy prices, this caused the headline to advance by the slowest pace since March 2021. Following this release, the Core PCE Deflator for May printed at 4.6% Y/y, this advanced at a slower pace from the prior 4.7% and missed consensus. Despite the recent declines, analysts at BMO noted that core metrics are holding levels above 4.0%, they added that stubborn prices will lead to a slow path back to the Fed’s 2% target. The consensus median doesn't see U.S. CPI going back to target over the forecast horizon, Rabobank and Scotiabank expect headline CPI rising 4.6% in 2023, Goldman Sachs and Uni Credit see prices accelerating by 4.1% this year. The desk at ING said the June report is likely to bring good news as food prices ease, energy components extend declines, rent prices stabilize and vehicles prices fall. ING said that these developments are likely to offset the strength in core services, they pencil headline CPI at 3.1% and the core figure at 5.0%, in line with consensus. If their projections materialize, ING raised the possibility of longer- dated interest rate expectations ticking lower. Our own U.S. inflation surprise index has been flat for most of the year, the headline is now bringing negative contributions to the index while the core is supporting most of the surprise (See Cable FX Macro Inflation Dashboard). The June headline CPI forecast range goes from 2.8% to 3.3%, the median projection is expected to see prices slow to 3.1% Y/y.
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