Market Pulse

Research evidence excerpt

Market Pulse

flict and its ancillary diplomatic process, traders will focus today on the US CPI report. The

consensus sees the year-over-year headline CPI rise further to 4.2%, but with a risk that we see 4.3%. Either would mark the

strongest prints since April 2023. But core CPI would see a more modest rise to 2.8-2.9% year-over-year, according to the

consensus. That would be the strongest since September 2025. Within the monthly drivers of the headline rate (expected to be

0.5%), it's energy prices that should see a rise comparable than in April. There's also a worry that food prices will be sharply higher

in April. as one-third of the world's fertilizer supply is produced in the Persian Gulf region, as is 10% of aluminum, which may have

put upward pressure on food packaging costs. Goods deflation overall previously acted as the primary factor in keeping US CPI

inflation contained in 2023 and 2024, but with tariffs going into effect in 2025, goods price disinflation has reversed, and there

remains a concern that supply-chain disruptions emitting from the US-Iran conflict, including also higher shipping expenses,

could drive inflation higher in new autos, household furnishings, appliances, building materials, etc.

So if there is any restraint in CPI inflation in April, it may be solely in non-energy services, especially housing rents, which

saw what seemed to be an outsized increase in the April CPI report (shelter rent was up 0.63% in April). That jump in rent

inflation in April was largely due to a one-off adjustment to the rent calculation following last autumn's government shutdown,

and is unlikely to be repeated in May. Other core items, such as medical care prices may then drive what's left of the core.