Market Wrap – US CPI reaction

This afternoon’s annual CPI release cause the US dollar to drop as the US annual inflation rate in the US fell to 4.9% in April 2023, the lowest since April 2021, and below market forecasts of 5%.

Stocks rose on the report and the VIX dropped by over 2 percent, with the Nasdaq rallying by over 1 percent and the S&P500 gaining by around 0.50 percent.

The report showed that annually food prices grew at a slower rate (while energy costs fell further including gasoline and fuel oil), prompting the market to believe that Fed might not raise rates in June.

Shelter cost, which accounts for over 30% of the total CPI basket, slowed for the first time in two years (8.1% vs 8.2%) and prices for used cars and trucks declined once again.

Compared to the previous month, the CPI rose 0.4%, much higher than 0.1% in March but matching market expectations. The shelter was the largest contributor to the monthly all-items increase, followed by used cars, trucks, and gasoline.

US core consumer prices, which exclude volatile items such as food and energy, rose by 0.4 percent from a month earlier in April of 2023, unchanged from the previous month and in line with market expectations.

Consumer costs rose considerably for used cars and trucks, halting a long series of decreases, and continued to rise for shelter and medical care. Year-on-year, core consumer prices advanced by 5.5%.

The largest upward contribution came from the cost of shelter (0.4%), used cars and trucks (4.4%) and gasoline (3%). Meanwhile, food prices were flat, and costs fell for natural gas airline fares and new vehicles.

It was also reported that China has asked banks to lower their rate ceilings on some retail and corporate deposits, starting from 15 May.

And that the big four state-owned banks are to lower their rate ceilings by 30 basis points, with some other financial institutions even called to cut by 50 basis points.