By Scott Hallermann.

The much anticipated April Consumer Price Index (CPI) (May 10) increased 0.4% from March and 4.9% from 1-year ago which was in-line with expectations. In my opinion, the CPI data increases confidence of having reached the intermediate term Fed terminal rate. I highlight the next two roll months in the last twelve months CPI chart nearby. The May CPI comparison is 0.9% and the June comp is 1.2%.

With the current restrictive monetary policy and the further tightening in bank credit as described in
the most recent Senior Loan Officer Opinion Survey (May 8), I think that absent a large energy spike, it
is highly likely the upcoming month over month CPI increases will be in the range of the last 10 months
which has been 0.0 to 0.5%. The nearby table shows the math for where headline 1-year CPI will come
in if we get prints in the mid to high part of that range. Next 2 monthly CPI increases as high as 0.5% will result in 1-year CPI falling below 4% by the end of the 2nd quarter. This would also position the Fed Funds rate more than 100 bps above the inflation rate. Important to note is that core CPI is rolling
smaller comps of 0.6% and 0.7% in the coming months which will likely result in CPI ex-food and energy trending lower over the full year basis but remaining closer to 5%.

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