Nearly two weeks ago, after the expected April core PCE price index was announced, U.S. stocks rose sharply, and the three major stock indexes ended their record-setting multi-week losing streak. At that time, the market was ecstatic and began to expect the same surprise in the next CPI data.

However, a report by JPMorgan Chase and the statement of the US Treasury Secretary shattered the market’s illusion of cooling inflation, saying that the May CPI data to be released today may exceed market expectations.

As soon as the news came out, U.S. stocks collectively fell sharply overnight. The three major stock indexes fell by at least nearly 2%, the largest decline in three weeks, and have closed down for two consecutive days. At the same time, the yield on the 10-year U.S. Treasury bond hit a new high in nearly a month, standing above 3.00%. The U.S. dollar index advanced further, rising above 103.00 intraday for the first time since late May.

JPMorgan Chase: May CPI data will be more than expected energy prices, increased travel is the key

Michael Feroli, chief economist at JPMorgan, expects the May CPI to be higher than widely expected.

In the report, Feroli wrote that the May CPI data may have risen by 0.8% month-on-month, higher than the market’s 0.7% month-on-month increase, and April’s month-on-month increase of 0.3%.

This increase was mainly driven by a strong rise in energy prices (4.6%), which included another notable increase in gasoline prices for the month, as well as continued solid gains in food prices (0.7%) and the core price index (0.47%).

According to this forecast, JPMorgan Chase expects the May CPI data to remain at 8.3% year-on-year, unchanged from the previous month, but also higher than Wall Street’s consensus forecast of 8.2%.

But at the same time, the report also pointed out that the growth rate of the core price index will indeed slow down, and it is expected to drop to 5.8% from a year-on-year growth rate of 6.2% in April, which is lower than Wall Street’s consensus of 5.9%.

Among them, JPMorgan Chase found “steady price increases” across many underlying categories. Rents rose 0.49% in May, while owner-occupied home-equivalent rents (extrapolated rents for owner-occupied homes) rose 0.45%.

However, Feroli said the worse had already happened. That is, accommodation prices have recently started to rise as outbound travel increases post-pandemic, and he expects prices to surge again in May, rising by 2%. At the same time, JPMorgan expects public transport prices to rise 1.5% in May on the back of increased travel demand and soaring fuel prices.

In addition, the increase in car prices is also not optimistic, and car prices have risen significantly in recent months. But JPMorgan also doesn’t expect car prices to change significantly in May, with new car prices rising 0.4% and used car prices rising slightly again.

Feroli also wrote that despite recent strong headline inflation, communications prices have fallen in recent months. JPMorgan expects the decline to continue through May, with a drop of 0.2%. In addition, after experiencing a sharp rise, clothing prices have fallen in April and are expected to drop by a further 0.1% in May.

Even if the market is dubious about JPMorgan’s analysis, the comments from U.S. government officials make it difficult for them to ignore.

U.S. Treasury Secretary Yellen: Food and energy prices will rise further

U.S. Treasury Secretary Janet Yellen acknowledged at an event on Thursday that U.S. food and energy prices are at risk of further increases.

And last Tuesday, after a face-to-face meeting with Fed Chair Powell and U.S. President Joe Biden, Yellen admitted that her prediction last year that “inflation is only temporary” was a misjudgment, not fully understanding the situation at the time, and some unexpected The shock made the situation worse. But Yellen reiterated that keeping inflation down is the government’s priority, saying the “unacceptable level of inflation” the U.S. is currently facing.

Separately, the media said, a White House official once again warned about the price surge, saying the White House expects “headline inflation to rise, as gasoline prices in April were 8.5% higher than in May. The White House official pointed out that the surge in jet fuel prices will pass Air ticket price hikes seep into core inflation.”

Of course, the government’s “hitting a stick to give a sweet date” also gave some optimistic expectations.

White House officials mentioned that the focus of consumers’ shopping is now shifting from goods to services, which they believe will help reduce pressure on supply chains.

And when asked whether the U.S. economy is headed for a recession, officials said a fiery job market and rising demand for goods both indicated the U.S. was not in a recession, which they considered “unlikely.” The White House official added that the U.S. economy was at a “good time” to transition to steady growth. Yellen also stressed that there are no signs that a recession is brewing.

But whether it is from the pessimistic statements of the major Wall Street banks or the warnings of the economic recession from the American academic circles, it seems that they do not support the views of government officials.

In addition, a less popular indicator in financial markets that reflects the expectations of traders most sensitive to U.S. inflation also shows that the annualized level of the U.S. consumer price index (CPI) will reach or exceed 5 months from May. 8.5%.

Pricing or derivative instruments related to the TIPS market for inflation-protected bonds suggest that the U.S. consumer price inflation in May released on Friday will reach 8.5% year-on-year, higher than the median forecast of 8.2% given by economists, and compared with the record set in March this year. 40-year highs are consistent. Traders also expect inflation data to climb to 8.6% in June and July, hit 8.8% in August and September, and ease back slightly to 8% in October.

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