May CPI data came in below expectations, with both headline and core inflation rising 0.1%, resulting in annual rates of 2.4% for headline. However, the report suggests this disinflation is temporary, as upcoming tariff-driven price increases are expected to pressure inflation higher, offsetting cooling shelter and service costs. The author anticipates stagflation – slow growth coupled with a temporary inflation spike – making higher S&P 500 levels risky in the near term.
May's Consumer Price Index (CPI) data indicated a softer inflationary environment than forecasted, with the headline figure rising 0.1%, below the 0.2% expectation, resulting in an annual rate of 2.4%. The core rate also increased by a modest 0.1%, significantly under the anticipated 0.3%. However, this disinflationary signal is viewed as temporary, potentially misleading due to inventory front-running by businesses ahead of impending tariff implementations. These tariffs are expected to drive consumer goods prices higher in the summer months. While shelter and services inflation are reportedly cooling, attributed to new supply and weakening demand, a broader slowdown in consumer spending is observed. Consequently, the outlook suggests a period of stagflation, characterized by stall-speed economic growth alongside a temporary inflation spike, which makes S&P 500 levels above 6,000 appear risky until later in the year.
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strongly negative
Sentiment Score
-0.65
