US inflation alerted the market by jumping to the 13-year high in April, primarily due to rising costs in airfare, used cars and lodging costs such as hotels. CPI jumped 4.2% on a YoY basis, well beyond the forecast at 3.6%. On a monthly basis, CPI also increased 0.8%, versus the 0.6% in March. Besides the major contribution from airfare, used cars and lodging costs, food prices also increased 0.4%, primarily lifted by grocery costs such as fruits, vegetables and dairy products. Since these costs were all driven by the pandemic, some believe that the increases are also likely to be transitory.
The impact has clearly been transferred to the financial market, with the 10-year Treasury yield rising 5 bps to 1.66%, reaching a two-week high. USD jumped with the yield, currently trading at around 90.740. At a larger scale, CPI data ignited a new round of stocks selloff in the equity market both in the US and APAC, due to the belief that the Fed would raise interest rates earlier than expected. Fed officials, however, were quick to play down the impact of one month’s numbers, with the Vice Chair Richard Clarida saying that the stimulus would still be needed for some time.