• Although the annual rate of headline CPI inflation remained in negative territory in April, there are clear signs of a firming in core inflation (1). The annual rate of core CPI inflation remains at a modest 1.8%, but the three-month annualised rate surged to a four-year high of 2.6% (2). Even headline inflation will rebound in May, with gasoline prices currently up about 10% m/m, which would add about 0.5% to the overall CPI (3).
  
  
• Some of the recent pick-up in core inflation is due to a rebound in used car prices, which follows some unusual weakness late last year (4).

• The recent surge in the price of medical care services in the CPI is particularly notable (5). But this surge won't be repeated in the Fed's preferred PCE deflator measure of inflation (6). That's because, like the PPI, the PCE measure includes the price of Medicare and Medicaid purchases, whereas the CPI only includes the out-of-pocket expenditures of households. The PCE physician services inflation measure has actually fallen, as Medicaid payment rates fell back at the start of this year.