This CPI data is significant in that it shot up over 2% – the highest since 2018 when the prints of 2.95% (July) and 2.70% (Aug) sent the 10Y up to 3.25%. 
But, it’s the inflation happening right now, which will be reported next month, that the Fed is worried about.
As we’ve anticipated, March’s 2.6% YoY print was largely the result of a large (22%, should be 28%) increase in gas prices. Though clearly non-transitory food, utilities, used cars and medical services all played an important role. 
The data next month, however, will put this to shame. As things stand now, April 2021’s gasoline prices (2.77) are up a whopping 60% over 2020 prices.
As we’ve discussed many times, this should put CPI at over 3% – perhaps closer to 4%.
The Fed seems to be betting that it can divert attention from the coming data. And, maybe they can, as bond prices seem to be immune to this data and the recent blowout PPI.
But, it remains to be seen whether the usual algo tricks will be able to handle a CPI print of over 3%.
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