The nervousness resurfaces on Wall Street following the CPI (published at 2:30 p.m., prices are rising more than expected) and investors choose the greenback as a retreat solution, rather than T-Bonds or so-called “defensive” values from the S&P500 (aside from Vertex or Humana). The “$-Index” climbs by +0.45% to 98.4 and reaches its levels from May 5.
It gains ground notably against the Euro (+0.45% to 1.1730), the Swiss Franc (+0.55% to 0.7820), and especially against the Pound (+0.7% to 1.3510), victim of political uncertainties in the UK, with a struggling Keir Starmer. The pound loses ground against all currencies, especially against the Yuan (-0.75%) which inches up +0.05% the day before Donald Trump’s state visit to China (Yuan = $6.7920). This greenback surge drags down Gold which drops by -2% (to $4,665) and silver (-3.5% to $84.20).
The highlight of this session was the publication of the American CPI: unsurprisingly, the rise in oil and its derivatives fuels the increase in prices for consumption in the United States. They increased slightly more than expected last month, reaching an annual rate of 3.8%, while economists were expecting a rate of 3.7% after the 3.3% observed in March. It would have been much worse if the US and the EU were not tapping into their stocks at a rate not seen since 1973.
“The total inflation is at its highest level since May 2023,” notes Bastien Drut, strategy and analysis manager at CPRAM, explaining that about two-thirds of the inflation increase this month comes from the “energy” component.
It has been over five years that inflation has exceeded the Fed’s target (+29% cumulative, compared to salaries that have increased by +26% on average in the United States): there will certainly be a majority of voices within the FOMC – presided over by Kevin Warsh – calling for the abandonment of the “accommodative bias” and potentially a rate hike (31% consensus for at least one hike by the end of 2026).
The core inflation is at its highest since September:
In underlying data (excluding energy and food products), the annual inflation rate reached 2.8%, thus reaching its highest level since last September, against 2.6% in March, while the consensus was 2.7%.
On a sequential basis, the increase in consumer prices reached 0.6% in total data and 0.4% in underlying data in April, with the latter figure slightly surprising, according to Josh Jamner, at ClearBridge Investments.
“This evolution leads to the acceleration of inflation over two months to 1.5%, its highest level since 2022 and a reading among the highest observed since the mid-1970s,” notes this analyst.
This analyst notes that the increase in housing costs (+0.6%) also contributed to the recorded progression this month, and that the so-called “supercore” CPI, corresponding to non-housing services in the base CPI, increased by 0.45% in April.
But over 1 year, many price increases are spectacular:
– Energy products (oil, gas): +29.2% – Gasoline: +28.4% – Airfares/airline tickets: +20.7% (kerosene +180%) – Energy (distribution/utilities): +17.9% – Electricity: +6.1% – Fruits and vegetables: +6.1% – Hospital services: +5.5% – Automotive repairs: +5.1%
Given the relative weight of these expenses in the budget of American households, a 3.8% score over 1 year seems completely trivial in relation to the “perceived inflation” (but which strongly affects real purchasing power).
If the Strait of Hormuz were to reopen by mid-June (in the best-case scenario), the price of oil will hardly fall below $90, considering the 5 million in production capacity that disappeared with the war (not only the one on hold in the Gulf, but also between Russia and Ukraine, and there, no “pause”), while the US, Europe, and all Asian countries will try, all at the same time, to rebuild their strategic reserves.
