Inflation comes in at...zero (risk on!)

Core inflation decelerates

Market hearts will be set a-flutter by this news, with US inflation coming at precisely 0.0 per cent in May, which was obviously lower than market expectations.

The index for shelter still rose +0.4 per cent, but given that it lags so much these pressures will continue to decline over the remainder of 2024, helping to keep pushing core inflation lower.

Source: Bureau of Labor Statistics

Over the year, headline inflation slowed to 3.27 per cent.

Core inflation also came in lower than expected at 0.2 per cent for the month, and slowed to 3.4 per cent (now well down from 6.2 per cent in September 2022). 

It's the lowest level of core inflation since April 2021, and as you can see from the red line below, the trend is clearly lower. 

Annualising the last 3 months, the headline rate drops to just 2.8 per cent, and core inflation to 3.3 per cent. 

Bond yields dropped significantly, including in Australia, and risk assets will love this. 

The US 2-year bond yield initially plunged 16 basis points to under 4.7 per cent, for the biggest daily rally of 2024 to date.

Markets are now pricing two interest rate cuts in the US by the end of the year, and no doubt Powell will try to talk down any prospect of imminent rate cuts in the afternoon presser.

Risk on time…

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