Welcome back, readers. The Forward Guidance newsletter’s Casey Wagner is back again. Yesterday, she wrote about how BTC is still trading on macro news and today she puts that theory to the test with May’s CPI report. Let’s dive in:

Inflation outlook

US stocks and bitcoin moved a bit higher Wednesday morning before paring gains after May’s CPI came in cooler than expected, suggesting that tariff-related price hikes are so far not a reality.  

After a slight rally at the beginning of the session, the S&P 500 and Nasdaq Composite indexes closed 0.3% and 0.5% lower, respectively. Bitcoin, meanwhile, had lost 1.4% to trade around $108,700 at 4 p.m. ET.  

Headline CPI rose 0.1% over the month and 2.4% annually. Economists had projected the figures to come in at 0.2% and 2.4%, respectively. 

Core CPI, which excludes volatile food and energy prices, also rose 0.1% over the month and 2.8% year over year, compared with expectations of 0.3% and 2.9%, respectively. 

Economists had largely expected tariffs to start impacting consumer prices in May, but today’s figures suggest otherwise. There’s a few theories as to why: 

First, businesses could be eating costs for now, as opposed to passing them off to consumers. The fact that many of the higher tariff rates have been paused and the policies are still in limbo make this theory more likely, in my opinion. 

We also know that companies bulked up their inventories at the start of the year to get ahead of tariffs, so if they are using stocked-up supply, it makes sense that prices aren’t moving higher. 

Second, data shows that Chinese manufacturers have increased exports to Southeast Asia, likely in an effort to avoid US tariffs. Exports to this region increased 15% year over year in May, according to government data released earlier this week. Meanwhile, shipments to the US fell 34.5%. This could be helping delay tariff-related price increases. 

June’s data will more accurately reflect how the United States’ latest deal with China is impacting exports, assuming this new truce is inked and lasts. More on that later. 

Third, consumer caution is high. We’ll get updated consumer sentiment numbers on Friday, but May’s figure came in at 52.2, unchanged from April. The CPI report showed new vehicle prices declined 0.3% over the month, suggesting that dealerships are offering reduced prices due to lower demand. 

Speaking of that latest trade truce, the US and China have reached a new (old?) preliminary trade deal, President Trump said Wednesday. 

Late last night, Commerce Secretary Howard Lutnick told reporters that the London meeting concluded with officials agreeing to a “framework” to “implement” the plan they hatched three weeks ago in Geneva. 

This morning, Trump clarified that the latest deal includes China rolling back its rare earth material export limitations. The US agreed to rescind recent visa restrictions for Chinese students and relax export controls on AI chips. He and Xi Jinping still need to officially sign off, Trump added. 

We’ll be keeping an eye on that, so you keep an eye on your inbox.

— Casey Wagner

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