Tonight's CPI data arrived as expected. Although food prices caused a cold sweat, core inflation remained moderate, not shaking the big logic of rate cuts.

The numbers are quite clear. Overall CPI year-over-year is 2.7%, in line with market expectations, and not higher than last time. Month-over-month growth is 0.3%, mainly driven by housing, with food and energy also contributing. Core CPI (excluding food and energy) stayed steady at 2.6% year-over-year, with only 0.2% month-over-month, which is even lower than the overall CPI's monthly increase. In simple terms, after removing the more volatile items, the real inflation pressure isn't that significant.

This data has a clear feature—service items are scorching hot, while goods are freezing cold, plus the sudden surge in food prices.

Housing rose 0.4% month-over-month, continuing to be the top driver of inflation. The market previously thought rent would ease, but the data proved otherwise—its stickiness is still strong. If rents don't come down, it's hard for core inflation to significantly decline further. This is a practical issue.

Food prices jumped 0.7% month-over-month, which is quite sharp. From household groceries to restaurant consumption, prices are rising across the board. This directly pushed the overall CPI higher and explains why ordinary consumers feel everything is expensive lately.

Energy prices rebounded with a 0.3% increase, reversing previous inflation suppression, but the rise is still within an acceptable range.

Service items like healthcare, clothing, airline tickets, and education also increased. Meanwhile, communication costs and home goods prices actually decreased, providing some balance.

Most importantly, although the food rebound pushed the overall CPI up by 0.3%, the Fed's real focus—core CPI—only increased by 0.2% month-over-month. This indicates that the underlying inflation pressure is actually manageable.

After the data was released, traders immediately increased bets on the Fed cutting rates, with short-term interest rate futures reacting quickly. As long as core CPI remains at this moderate 0.2%, short-term fluctuations in food and energy prices pose little threat. The Fed still has enough room to maintain an accommodative policy and support the labor market through 2026.