With expectations of a 4%-plus print, all eyes are on this morning's CPI report as we move past April's shutdown-related distortions.

Headline CPI rose 0.5% MoM (as expected) in May, lifting prices 4.2% YoY (also as expected). The first 4%-plus print since April 2023...

Core Goods prices deflated in May while Energy remains a notable contributor...

CPI details:

Headline: The all items index rose 4.2 percent for the 12 months ending May, after rising 3.8 percent for the 12 months ending April. The all items less food and energy index rose 2.9 percent over the year, following a 2.8-percent increase over the 12 months ending April. The energy index increased 23.5 percent for the 12 months ending May. The food index increased 3.1 percent over the last year

• The index for energy rose 3.9% in May, after rising 3.8% in April and 10.9% in March. The energy index accounted for over 60% of the monthly all items increase. The index for shelter also increased in May, rising 0.3 percent.
• The food index increased 0.2% over the month as the food at home index rose 0.1% and the food away from home index increased 0.3%.

This is the first deflationary print for goods prices in a year...

• Household furnishings and Supplies -0.042%

• Transportation Commodities less motor oil: -0.49%

• Medical Care Commodities -0.54%

Core CPI rose less than expected (+0.2% MoM vs +0.3% MoM exp), lifting prices by 2.9% YoY (as expected), up from April's 2.8% YoY and the highest since Sept 2025...

Core Services costs are accelerating...

Core: The index for all items less food and energy rose 0.2% in May.

Indexes that increased over the month include communication, airline fares, medical care, personal care, and recreation.

• The shelter index increased 0.3% over the month.
  • The index for owners’ equivalent rent rose 0.3 percent in May and the index for rent increased 0.4 percent.
  • The lodging away from home index also rose 0.4 percent over the month.

• The index for communication increased 1.3 percent over the month, after falling 0.2 percent in April.
• The airline fares index rose 2.7 percent in May and the personal care index rose 1.0 percent.
• The index for recreation rose 0.3 percent over the month as did the index for apparel.
• The used cars and trucks index increased 0.1 percent in May
• The medical care index increased 0.3 percent in May, after falling 0.1 percent in April.
• The index for hospital services increased 0.7 percent over the month.

On the other hand, the indexes for motor vehicle insurance, household furnishings and operations, and new vehicles were among the major indexes that decreased in May.

• Conversely, the prescription drugs index decreased 0.9 percent over the month while the physicians’ services index was unchanged in May.
• The motor vehicle insurance index declined 1.7 percent in May after rising 0.1 percent in April.
• The index for household furnishings and operations fell 0.6 percent over the month and the index for new vehicles declined 0.3 percent.

Transportation Services deflated MoM...

...led by the unexpected drop in Insurance costs...

Goods inflation overall is trending lower while Services costs are accelerating...

On a shorter-term basis, its all about energy...

But, is this the peak of Energy-cost-driven inflation?

This leaves headline consumer prices up 5.16% since President Trump came to office...

And perhaps most notably, Americans' real wages are shrinking on a YoY basis (for the first time since April 2023)...

Let's just hope this analog fails here...

BofA's Michael Hartnett previously warned that a May print above 0.4% (estimates currently have it a 0.6%) means US CPI >4% YoY and on course for 5% by US midterms, and risk assets get twitchy: in the past 100 years once CPI crosses 4% on average, the S&P is down 4% in the next 3 months, and down 7% next 6 month...

Finally, while nattering nabobs of mainstream media will be decrying Trump's terrible record on prices, Deutsche Bank's Jim Reid notes that when looked at over the full century, inflation above 4% is not especially rare: over a quarter of monthly observations have exceeded this level.

However, these episodes have tended to arrive in distinct waves - most notably around WWII, during the 1970s, and more briefly in the post-Covid period.

Smaller but still meaningful pockets also appeared during the late-1980s boom and ahead of the GFC.

The more recent experience looks very different.

Since 1992, 83% of observations have sat comfortably in the 1–4% range, with just 10% printing above 4%. For most market participants, then, inflation above 4% has been an exception rather than the rule.

The key question is whether the future looks more like the last 35 years or the full 105-year monthly history.

While there are no immediate signs of inflation running away, the disinflationary environment of the past few decades benefited from a set of unusually supportive, and largely non-repeatable, global forces.

So going forward the template from the last century rather than the last few decades will probably be the better guide.