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“There are so many worlds, and I have not yet conquered even one” – Alexander the Great

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Futures are little changed, and that’s understandable given the focus on the release of May CPI.  Outside of the US, the PBoC lowered its 7-day reverse repurchase rate by 10 basis points, and there are reports of other policy decisions under discussion. Oil prices are higher, but with WTI at $68 a barrel, it’s hard to say that prices are rallying.  Ahead of the May CPI, small business sentiment from the NFIB came in slightly higher than expected at a level of 89.4 versus expectations for a reading of 88.5. In individual stock news, shares of Zions Bancorp (ZION) are down 2% after the company noted at an investment conference that they expect loan growth to moderate.

The May CPI report just hit the tape, and both the headline and core readings were right in line with forecasts on a m/m basis.  On a y/y basis, headline CPI was one-tenth lower than expected (4.0% vs 4.1%) while the core reading came in a tenth higher at 5.3% versus the 5.2% forecast. There’s been little change in markets in reaction to the report, and there’s nothing here to suggest that the Fed can’t pause tomorrow, although the hotter-than-expected y/y reading in the core reading is probably more negative than the fact that the lower-than-expected headline reading is positive.

With the release of the May CPI, the pace of increase in y/y inflation has now declined for eleven straight months.  In the history of the report dating back to the early 1900s, this is just the third time that the y/y reading has decelerated versus the prior month’s reading for ten or more months.  This month’s decline topped the ten-month streak that ended in July 2012, and the only streak that was longer lasted 12 months and ended in June 2021 just after WWI and the Spanish flu epidemic. During that 12-month streak, the y/y rate of inflation dropped from a peak inflation rate of 23.7% to deflation of 15.8%.  Talk about a reversal. In the current streak, the rate of inflation has only declined just over 5 percentage points from a peak of 9.1% to May’s reading of 4.0%

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