May CPI Forecasts Show Continued Lofty Inflation

The May U.S. Consumer Price Index (CPI) report, set for release on June 12 at 8:30 am ET, is forecast to show continued high inflation, with overall prices rising 0.5% month-over-month and 4.2% year-over-year, according to FactSet. Core CPI, excluding food and energy, is expected to increase 0.3% monthly and 2.9% annually, reflecting persistent inflationary pressures. Rising energy costs, driven by the Iran war, are the primary contributor to elevated inflation. Oil prices above $100 per barrel risk spreading inflation beyond transportation to sectors like warehousing, retail, and wholesale trade. Economists at Deutsche Bank predict a 6.8% jump in gas prices, which could push headline CPI higher, while Bank of America forecasts a 0.46% monthly increase in overall CPI, the highest year-over-year rate since April 2023. Despite inflation remaining above the Federal Reserve’s 2% target, the central bank is unlikely to change interest rates at its June meeting. Labor market strength and modest core inflation may delay action, though bond markets still anticipate a rate hike by year-end if energy-driven inflation persists. Analysts warn that sustained high fuel costs could lead to broader inflationary effects, particularly in transportation services and related industries. Vanguard’s Adam Schickling notes that while near-term pass-through risks are limited, prolonged oil prices above $100 per barrel will likely escalate inflation in other sectors. The May report follows April’s housing cost adjustments, which skewed inflation higher. Economists expect core services inflation to soften slightly, but energy prices remain the dominant factor in headline inflation. The Fed’s next move hinges on whether inflation stabilizes or worsens in coming months.