14.05.25 - Next trigger - not the inflation

Yesterday’s inflation report came in below expectations. The US Consumer Price Index (CPI) rose by a seasonally adjusted 0.2% in April, bringing the annual inflation rate down to 2.3%, its lowest level since February 2021 and below the forecasted 2.4%. Core CPI, which excludes food and energy, also increased 0.2% month-over-month, with the year-over-year rate holding steady at 2.8%, slightly below the expected monthly increase of 0.3%.

Markets: Markets reacted positively with tech stocks leading the gains. The Nasdaq jumped 1.5%, US Treasury yields moved higher, with the 10-year yield approaching the 4.5% mark.

My view: Markets had braced for a hotter inflation print in April, given that it was the month when new tariffs were announced. However, most of these tariffs were ultimately put on hold, and many trade deals were settled in advance. As a result, a large volume of goods had already been pre-loaded in March, cushioning any immediate price impact.

A key contributor to the softer inflation reading was the sharp drop in energy prices. Crude oil fell from USD 72 to USD 58—an almost 20% decline. That said, in May, oil has already rebounded by nearly 10%. Should this upward trend continue or even persist at current levels through month-end, it will likely exert upward pressure on May’s inflation print.

At the same time, many macroeconomic indicators are currently being distorted by short-term effects. These temporary dynamics must be carefully considered when interpreting the latest data releases.

Last but not least, the April inflation data reinforces the Federal Reserve’s “wait-and-see” stance. With inflation still above target and no signs of urgency, rate cuts in the near term remain unlikely.

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