This is the perfect chart to illustrate where US inflation is headed in the months ahead.
May and June will undoubtedly see lower year-over-year readings with gasoline prices down 30% y/y. With that, headline inflation could fall to sub-3% in the June.
Beyond that is what the FOMC is thinking about now. This chart from EY Parthenon's @GregDaco is a great illustration of how the monthly numbers migrate into the year-over-year data.
The current consensus for May is +0.2% and another reading like that in June would take the index just below 3%. From there though, the y/y laps start to get tougher and even with +0.2% readings, inflation will stay close to 3%, rather than falling to the Fed's target of 2%.
The chart illustrates what needs to happen to get inflation down to target. The m/m readings so far this year have been (starting in Jan):
- +0.5%
- +0.4%
- +0.1%
- +0.4%
Cumulatively, that's already high so getting to the 2% target for this calendar year would require nearly no inflation for the final 8 months of the year. But next year will get easier as those numbers are lapped.
What the Fed will be looking for are numbers in the +0.1-+0.2% range for many months before they signal preparedness to cut rates.