The CPI inflation figures released this morning were eye openers: The overall CPI rose 0.4 percent in May, double the average forecast of economists and up from the 0.3 percent gain in April.
More importantly, the “core” CPI surged 0.3 percent, the biggest monthly increase since August 2011.
Overall prices are now up 2.1 percent on a year-over-year basis, the biggest increase since October 2012. And core CPI is now up 2 percent YOY, hitting the Fed’s unofficial target for the first time in a long time. Food prices surged the most in almost three years, while airfares jumped the most in 15 years.
This report is a potential game changer, considering it comes after the longest stretch of 200,000+ jobs created monthly since 1999 and on the first day of a two-day Fed policy meeting.
It could increase pressure on the Fed to start normalizing rates and speed up the pace of QE tapering, after a multi-year stretch of ridiculously easy policies. So it’s no surprise that eurodollar futures prices are getting whacked here, and interest rates are rising. This also should be dollar bullish/euro bearish, as it further validates that we are ahead of the euro zone in terms of the economic and monetary policy cycle.
— Mike Larson
P.S. Read more on this subject in Mike Larson’s Money and Markets column later today.