Consumer prices rose faster than expected in May. The Consumer Price Index (CPI) was up 5.0% year-over-year in May versus up 4.2% in April. Core CPI (CPI less food and energy) was up 3.8% year-over-year in May, versus up 3.0% in April. On a month-over-month basis, headline CPI rose 0.6% in May, ahead of the 0.4% consensus forecast. The increase was driven in part by a continued surge in used vehicle prices in May, with prices up 7.3% month-over-month following a 10.0% increase in April. On a year-over-year basis, used car and trucks are up 29.7%, according to the index, which is largely a result of supply chain issues and shortages. Energy prices are up 28.5% year-over-year, measured against the severe decline in energy prices in the early stages of the pandemic last year. However, pricing pressure for food and shelter has been more muted with each category up an average of 2.2% year-over-year. It is uncertain if current inflationary pressures will be temporary or more persistent, but we believe the Fed is looking through the near-term inflation data. The Fed expects “base effects” (i.e., comparing current prices to prices at the early stage of the pandemic when prices were under pressure), bottlenecks, and ongoing supply chain disruptions to cause near-term pricing pressures, but the Fed still believes these factors will be temporary. Notably, the base effects should start to phase out in the next CPI report, given that prices started to rebound in June of last year, but supply chain issues may take several months to normalize.