Rates as of 0500 GMT

Market Recap

What a day! The big event of course was the US consumer price index CPI for April. As it turns out the yoy rate of increase did fall thanks to base effects, but not as much as expected. Furthermore and this was the main point the mom change was higher than expected, particularly in the core CPI, which accelerated more than expected. The threemonth annualized change in the core CPI did fall a bit, but not as much as expected. This development is worrisome because it suggests that inflation cant be blamed solely on Ukraine and higher energy prices. Rather, price increases are spreading out among a wider variety of goods services.

Airfares were responsible for a lot of the increase.

But other prices that have little to do with the pandemic also rose, such as housing prices. Owners equivalent rent, which makes up nearly a quarter of the CPI basket,  was up 0.45, the fastest mom increase since June 2006. Rents rose 0.56 mom, the secondhighest increase since Dec. 1987.

The Atlanta Fed produces an index of the CPI broken down between flexible prices those that change frequently, like airfares and gasoline and sticky prices those that change infrequently, like Netflix subscriptions. What it showed is that while flexible prices fell in the latest month, sticky prices resumed their uptrend. This is worrisome as it implies that inflation is becoming more entrenched in the economy.

Fiveyear inflation expectations rose, as you might…