News summary

U.S. inflation data fell in April, and CPI and core CPI were both lower than previous values year-on-year. Core services are the main reason for inflation resilience, and the price of used cars among core commodities has fallen. Housing rent inflation is still falling, and transportation service inflation is affected by rising maintenance costs for new energy vehicles. Inflation is moving towards the Fed's target but is highly sticky, and the CPI base effect in the second half of the year is unfavorable. The possibility of cutting interest rates in 2023 is low, and U.S. stocks still have room to rise. Risks include a weakening of the economy beyond expectations and a fall in inflation beyond expectations.

Newsletter text

[U.S. inflation data showed a decline, milder than in the first quarter] The latest U.S. announcementdownloadholdempokerApril inflation data showed that both CPI and core CPI fell year-on-year and month-on-month.

This trend is reverseddownloadholdempokerAfter the first quarter's rise, the U.S. stock market was boosted and hit a new record high.

The decline in inflation is mainly driven by the significant decline in the price of used cars among core commodities. With the indication of the Mannheim index, it is expected to decline further in the future.

Research by the Cleveland Fed points out that the New Tenant Rent Index (NTRR) may herald a fall in housing rent inflation in the future, although there may be a rebound in the short term.

The rise in motor vehicle insurance premiums has become the main force driving inflation in core services, which may be related to the increase in maintenance costs of new energy vehicles.

Although inflation was better in April than in the first quarter, the stickiness of core services suggests that the decline in inflation will still face fluctuations.

The Federal Reserve is still some way from achieving its target inflation rate of 2%, and the pace of interest rate cuts is expected to be hindered in the second half of the year due to base effects.

At present, the market seems to be accepting liquidity easing expectations brought about by unfavorable economic information, and U.S. stocks still have room for growth under this logic of "bad news equals good news."

However, we still need to be vigilant against the unexpected weakening of the fundamentals of the U.S. economy, the unexpected fall in inflation, and the potential threat of financial risk events.