After seven weeks of oil supply disruptions, with WTI crude back above $100 ($101.5) and Brent at $107.5, the hypothesis of "transitory" inflation is no longer being taken seriously.

Even if the Strait of Hormuz were to reopen by mid-June (the best-case scenario), oil prices are unlikely to fall back below $90. This is due to the 5m barrels of production capacity that have vanished due to war: not only the "pause" in the Gulf, but also the ongoing conflict between Russia and Ukraine, where no pause is in sight. Meanwhile, the United States, Europe, and Asian nations will all be attempting to replenish their strategic reserves simultaneously.

Unsurprisingly, the surge in oil and its derivatives is fueling US consumer price growth. Prices accelerated slightly more than expected last month, reaching an annual pace of 3.8%, while economists had anticipated a rate of 3.7% following the 3.3% print in March.
The situation would have been significantly worse had the US and the EU not been drawing down their stockpiles at a rate unseen since... 1973.

"Headline inflation is at its highest level since May 2023," notes Bastien Drut, Head of Strategy and Analysis at CPRAM, explaining that approximately two-thirds of the monthly inflation increase stems from the energy component.

Inflation has now remained above the Fed's target for more than five years (a cumulative +29%, compared to average US wage growth of +26%). There will almost certainly be a majority of voices within the FOMC: which will be chaired by Kevin Warsh: calling for the abandonment of the "accommodative bias" and potentially a rate hike (consensus currently sits at 31% for at least one hike by the end of 2026).

Core inflation is at its highest since September:

On a core basis (excluding energy and food), the annual inflation rate hit 2.8%, returning to its highest level since last September, up from 2.6% in March and exceeding the 2.7% consensus.

On a sequential basis, consumer price growth stood at 0.6% for the headline figure and 0.4% for the core reading in April. The latter figure was a slight surprise, according to Josh Jamner at ClearBridge Investments.

"This trend brings the two-month inflation acceleration to 1.5%, its highest level since 2022 and among the highest readings observed since the mid-1970s," the analyst observed.

He further noted that rising shelter costs (+0.6%) contributed to this month's gains, and that "supercore" CPI, which tracks services excluding housing within the core CPI, rose by 0.45% in April.

On a year-over-year basis, many price increases are spectacular:

-Energy products (oil, gas): +29.2%
-Gasoline: +28.4%
-Airfares: +20.7% (jet fuel +180%)
-Energy (distribution/utilities): +17.9%
-Electricity: +6.1%
-Fruits and vegetables: +6.1%
-Hospital services: +5.5%
-Auto repairs: +5.1%

Given the weighted relative importance of these expenses in American household budgets, a 3.8% annual score seems almost trivial compared to "perceived inflation," which is taking a heavy bite out of real purchasing power.

Investors are not mistaken: the 10-year T-Bond yield is up +4.5bps to 4.458% (typically, when the 10-year approaches 4.5%, Trump makes an "announcement"), the 30-year is up +3bps to 5.017%, and the 2-year is up +5bps to 3.997%, effectively 4%.

Inflationary risk is asserting itself across all continents. Conditions are deteriorating sharply for French OATs, up +8bps to 3.744%, while Bunds added +6.3bps to 3.106% (the worst level of the year). Italian BTPs surged +9.7bps toward 3.880%, and Spanish Bonos rose +7.3bps to 3.5400%.
Unsurprisingly, Gilts are seeing the heaviest sell-off, with yields jumping +11bps to 5.112% as Keir Starmer faces the first resignations within his government following last Thursday's electoral rout.

Finally, in Japan, the 10-year yield hit a new 29-year high (since June 1997) at 2.546% (+3.5bps), reaching 2.565% intraday. The 40-year yield soared +6bps to 4.088%, hitting 4.1380% during the session: quite simply an all-time record.