11.06.25 - Inflation pressure - not there, yet?

Today’s reported inflation numbers came in lower than expected. The CPI (Consumer Price Index) rose 0.1% for the month of May, below the 0.2% estimate, with an annual increase of 2.4%, below the 2.5% consensus estimate.

Core CPI, which excludes food and energy, rose 0.1% on the month, cooler than the 0.3% expected reading. And the year-over-year increase was 2.8%, below the 2.9% estimate.

Markets: US stock futures initially cheered the softer data with US equity futures surging ahead of the opening. During regular trading hours, major indices gave back some of those gains, hough they remain in positive territory; US dollar weakened alongside falling yields, with the 10-year yield dipping from 4.5 to nearly 4.4%; positive price reaction on gold and cryptos.

My view: The headline inflation numbers may look contained for now, but underlying cost pressures are building and could resurface in the second half of the year.The CPI report delivered a positive surprise, and under normal conditions, this would have triggered a more sustained market rally. Adding to the bullish narrative is the news of a trade agreement between the US and China—potentially easing tensions around critical materials and tariffs. But after the sharp rally in recent weeks, markets appear overbought. Today’s news, while constructive, is no longer enough to fuel another major leg higher. A correction seems both healthy and overdue.

While a broader tariff escalation has been delayed as negotiations are still on-going, the real impact may surface in the coming months as companies preemptively hike prices. With imports from China fell sharply for two consecutive months, there are currently no news on product shortages. But, rising commodity prices, especially in metals and oil, are likely to lead to inflation to some extent.

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