The nervousness reappears on Wall Street following the CPI (published at 2:30 p.m., prices increase more than expected) and investors choose the greenback as a fallback solution, rather than T-Bonds or so-called “defensive” values of the S&P500 (except Vertex or Humana). The “$-Index” climbs 0.45% to 98.4 and regains its levels from May 5.
It gains ground notably against the Euro (0.45% to 1.1730), against the Swiss Franc (0.55% to 0.7820) and especially against the Pound (0.7% to 1.3510), a victim of political uncertainties in the United Kingdom, with Keir Starmer on thin ice. The pound loses ground against all currencies, especially against the Yuan (-0.75%) which edges up 0.05% on the eve of Donald Trump’s state visit to China (Yuan = $6.7920). This rise in the greenback weighs on Gold which falls 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 rise 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 expected 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.
“Total inflation is at its highest level since May 2023,” notes Bastien Drut, head of strategy and analysis at CPRAM, explaining that about two-thirds of the inflation increase for the month comes from the “energy” component. It has been over five years since inflation has been above the Fed’s target (with a 29% cumulative increase, compared to wages which have increased by 26% on average in the United States): there will certainly be a majority of voices within the FOMC – chaired by Kevin Warsh – calling for the abandonment of the “accommodative bias” and possibly 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, compared to 2.6% in March, while the consensus was at 2.7%. In sequential terms, the increase in consumption prices reached 0.6% in total data and 0.4% in underlying data in April, with the latter figure being slightly surprising, according to Josh Jamner at ClearBridge Investments. “This evolution has accelerated 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. He notes that the rise in housing costs (0.6%) also contributed to the increase recorded this month, and that the so-called “supercore” CPI, corresponding to services excluding housing in the base CPI, increased by 0.45% in April.
But over one year, many price increases are spectacular: – energy products (oil, gas): 29.2% – gasoline: 28.4% – airfare/plane tickets: 20.7% (kerosene 180%) – energy (distribution/utilities): 17.9% – electricity: 6.1% – fruits and vegetables: 6.1% – hospital services: 5.5% – car repairs: 5.1% Given the relative weight of these expenses in the budget of American households, a score of 3.8% over one year seems completely insignificant compared to the “felt inflation” (but which bites hard into real purchasing power).
If the Strait of Hormuz were to reopen by mid-June (best-case scenario), the price of oil is unlikely to fall below $90, considering 5 million barrels of production capacity that have disappeared due to the war (not only the one on “pause” in the Gulf, but also between Russia and Ukraine, and no “pause” there), while the United States, Europe, and all Asian countries will try, all at the same time, to rebuild their strategic reserves.
