In the US CPI data being released on 13th May, we expect a rebound in core CPI inflation in April to 0.31% m-o-m following an unexpected slowdown in March, but the impact of tariffs likely remained limited. Inflation of owners’ equivalent rent (OER) likely moderated after having accelerated in March. Super core service inflation appears to have rebounded in April due to stabilization in volatile components. Our forecast for April core PCE inflation is +0.17% m-o-m, close to an annual rate of 2.0%. Despite higher core goods prices, lower prices for portfolio management services and airline fares likely weighed on core PCE inflation in April. Although we believe core inflation will accelerate substantially in coming months, a relatively benign reading of core CPI inflation for April is unlikely to impact the monetary policy outlook for now. But as we move ahead, the weakness in the employment data will be far stronger than the weakness in the core PCE data. Hence the Fed might have to choose employment mandate over the CPI mandate by July NFP data. Hence, we continue to expect total 75 bps cut in REMCY25.
