Us CPI rose 8.6 per cent year-on-year in May 2022 (expected to rise 8.2 per cent, compared with 8.3 per cent); quarter-on-quarter growth of 1.0 per cent (0.8 per cent, 0.3 per cent); core CPI 6.0 per cent year-on-year (5.9 per cent, 6.2 per cent); and core CPI rose 0.6 per cent month-on-month (0.5 per cent, 0.6 per cent).

• CPI in the United States hit another record high in May, with the year-on-year growth rates of energy and food both at an all-time high.

Us CPI rose 1.0 per cent month-on-quarter in May, higher than expected and well above the previous value of 0.3 per cent, while year-on-year growth rose to 8.6 per cent from 8.3 per cent the previous month, the highest since December 1981. Core CPI rose 0.6% from the previous quarter, unchanged from the previous month, while the year-on-year increase fell to 6.0% from 6.2% the previous month, slightly higher than expected. According to the Trichotomy of food, energy and core CPI, the US CPI energy sector grew 34.6 per cent year-on-year in May, the highest since September 2005, rising to 3.9 per cent from-2.7 per cent last month, while food items rose 10.1 per cent year-on-year and 1.2 per cent, exceeding 10 per cent year-on-year for the first time since March 1981.

• Energy, housing and food were the main drivers of CPI gains in the United States in May.
  

In terms of the key sub-items affecting CPI, the energy sector ranked first in terms of the growth rate of quarterly adjustment contribution, while the housing sector contributed 0.19% and the food sector contributed 0.16%, ranking second and third respectively. In terms of year-on-year contribution growth, energy contributed 2.86%, ranking first, while housing and food contributed 1.78% and 1.36%, respectively. In addition, the gasoline index rose 4.1% in May, while other energy indices also rose.

• High oil and food prices, a surge in summer travel demand and unabated housing growth could lead to high year-on-year CPI growth of around 8.5 per cent in June, and US inflation could remain at its peak in the third quarter.
  

First, although the international crude oil price in May did not exceed the March high, judging from the gasoline prices that actually affected CPI, the US gasoline price in May was further higher than that in March, while from the data as of June 6, gasoline prices rose further from $4.44 / gallon at the end of May to $4.70 / gallon, and gasoline prices are expected to continue to rise in June. Second, the summer travel demand will be gradually strong, under this influence, the prices of travel-related goods and services such as new cars, used cars, air tickets and public transport are likely to remain high or rise further. Third, according to the historical relationship of 15-16 months leading rent, the phased peak of US house prices after the epidemic is July 2021, so it may be difficult to slow down the subsequent housing growth rate. To sum up, the year-on-year growth rate of US CPI in June may still be at a high level of around 8.5%.

• It is expected that the probability of the Fed raising interest rates 50bps in September is high, and the current probability of a single interest rate increase 75bps may still be low.
  

First of all, in the case of higher-than-expected inflation, the Fed may continue to maintain the pace of 50bps rate increases at its September meeting, and there is no possibility of suspending interest rate increases this year. Second, although inflation is high, the US economy is also relatively marginal downwards. Due to the greater impact of sharp interest rate increases on economic growth, especially on economic growth expectations, its restraining effect on inflation, especially on oil and food prices, may still need to be observed. Therefore, at this point, we think that the probability of the Fed raising interest rates in a single 75bps may still be low. We need to focus on the signal and policy tone from the statement of the Fed's interest rate meeting next week and Powell's speech after the meeting.

• High inflation innovation has raised market expectations for subsequent Fed tightening, as well as for distal recessions.
  

As inflation exceeds the previous high, interest rates on 10-year Treasuries are likely to break through the previous high of 3.2 per cent, but the upside is expected to be limited. On the one hand, inflation hit a record high and market expectations of further Fed tightening rose, but on the other hand, market expectations of a US recession also rose because of fears of further policy tightening. This was reflected in the sharp fluctuations in interest rates on 10-year Treasuries following the release of the inflation data, weaker global commodity prices and stronger gold prices. In terms of US stocks, it is expected that the follow-up US stock market may continue to fluctuate sharply, making it more difficult to achieve a sustained rebound. With regard to US debt, as inflation exceeds the previous high, interest rates on 10-year US bonds may break through the previous high of 3.2%, but due to the increase in recession expectations, the upside is expected to be limited and may also fluctuate between inflation expectations and recession expectations.

• Risk factors:
  

Fed policy tightened more than expected; US inflation rose higher than expected or fell more than expected.