US: Inflation unexpectedly accelerates to 8.6 percent, highest level in 40 year

The consumer price index increased by 8.6% compared to the previous year. Inflation periodically increased by 1% compared to the previous month, exceeding all forecasts. The core CPI, which excludes the more volatile food and energy components, rose 0.6% from the previous month and 6% from a year ago, again above estimates.

If we look at the sub-items; The increase was broad-based and the housing, gasoline and food indices contributed the largest. After falling in April, the energy index increased by 3.9% compared to the previous month, the gasoline index increased by 4.1% and other major component indices also increased. The food index rose 1.2% in May. The index for all items except food and energy increased by 0.6% in May at the same rate of increase as in April. While nearly all major components increased during the month, the biggest contributors were shelter, airline fares, used cars and trucks, and new vehicles. Medical care, household goods and operations, leisure and clothing indexes also increased in May.

All items rose 8.6% in the 12-month period ending May, the largest 12-month increase since the December 1981 period. All items minus the food and energy index increased by 6% in the last 12 months. The energy index rose 34.6% year-on-year, the biggest 12-month increase since the period ending September 2005. The food index rose 10.1% in the 12-month period ending May, the first increase of 10% or more in March since the period ended in 1981.

The fact that headline inflation is above expected levels and tending to peak has created the expectation of more aggressiveness in terms of Fed policies. After the data, the US 10-year bond yields remain above the 3% band with 3.06%. Traders are pricing in the Fed’s three half-point rate hikes in full in the coming months after US inflation data comes in faster than expected. Fed swaps show that money markets saw a 50 basis point increase in June, July and September. If we take into account the total tightening of 75 bps by the central bank since the beginning of the year, a total tightening of 225 bps will have been achieved as of September under this assumption. So, is there a possibility of 75 bps increase in any meeting? It is possible if inflation concerns increase…

Kaynak: Tera Yatırım- Enver Erkan

Hibya Haber Ajansı