U.S. consumer prices probably rose at the fastest pace in nearly 40 years in May, data is expected to show on Friday.
The Bureau of Labor Statistics’ May consumer price index (CPI) is expected to reflect a year-on-year increase of 8.3% last month, unchanged from the April print, according to consensus estimates compiled by Bloomberg. On a monthly basis, economists expect the broadest measure of inflation to have risen at an accelerated pace to 0.7% from 0.3% in April.
Ahead of Friday’s report, experts are predicting a spike in gasoline prices will be a driver of inflation for May after a recent rally to all-time highs. In April, a moderation in energy prices offered temporary inflation relief after Russia’s invasion of Ukraine rocked global commodity markets in March.
“Current rates from a year ago benefit from base effects, but by mid-summer these will no longer be useful,” Wells Fargo economists said in a note Wednesday. “Furthermore, gasoline prices soared in May, taking back the short-lived reprieve they offered in April.”
Core CPI – which excludes the highly volatile food and energy sectors and is closely watched by policymakers – could be a bright spot in Friday’s report.
Economists expect core inflation to have risen 5.9% year-on-year and 0.5% month-on-month, according to Bloomberg data. Those numbers would mark a slight slowdown from increases of 6.5% and 0.6%, respectively, in April.
In addition to serving as an indicator of the daily costs Americans are shelling out for groceries, gas, housing and other goods and services, May’s consumer price index comes just before the Federal Reserve is set to raise interest rates further at its policymaking meeting next week. .
Investors expect the Fed to raise its benchmark interest rate by 50 basis points, or 0.50%, on June 15; an increase of the same order of magnitude is expected in July. Persistent inflation readings could also set the stage for an increase of this magnitude in the fall.
“Headline CPI will likely remain above 8%, making another 50 basis point hike in September increasingly likely,” KPMG senior economist Tim Mahedy said in a note. “I said last month that we needed to see headline CPI fall below 8% or we would see a jump in the risk of the Fed pushing rates above neutral in the fourth quarter.”
“It looks like we’re heading for another reading above 8% in May, which just means we need to see a big drop in June,” Mahedy said. “We’re running out of time, and there’s plenty of reason to think inflation will ease, but it will be more gradual than the Fed would like.”
Only three of the past 24 months have seen the headline CPI turn weaker than expected – June 2020, November 2020 and September 2021 – according to the Bespoke Investment Group date, and all three reports were released before Fed Chairman, Jerome Powell, does not abandon language describing inflation as “transient.”
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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