US INFLATION: Analyst Expectations Of Key Sequential Drivers For May CPI Report

Energy inflation should see a similarly strong increase as in April but food might moderate after a strong April:

• Energy (small +ve to neutral): Energy prices are expected to show another strong increase of ~4.0% M/M (range 3.4-4.7%) after 3.8% M/M in April following the booming 10.9% M/M in March.
• Food (-ve): Expected to moderate to 0.3% M/M after a surprisingly strong 0.5% M/M in April, which had in turn been driven by the food at home category jumping 0.68% M/M (highest since Aug 2022) in a potential sign of passthrough from higher transportation and fertilizer costs.

For core, upside drivers to M/M inflation compared to April are relatively limited with highlights being used cars and medical items. Largest downside drivers are rents – after an artificial boost in April – and lodging away from home. 

• Used cars (+ve): Expected to firm after a surprisingly soft April, with an average 0.3% M/M in May but a reasonably wide range of -0.2% to 0.8% M/M. Feedthrough from prior strength in the Manheim used vehicle series has been slow.
• Medical items (+ve): Medical care commodities are on average seen flat after slipping -0.4% M/M in April whilst services could have firmed a little after a flat April.
• Rents (large -ve): OER and primary rent inflation should drop back to typical monthly rates in May after a delayed impact from last year’s government shutdown saw a sharp acceleration in April. OER on average seen rising 0.24% M/M in May (range 0.22-0.25) after 0.53% in Apr and 0.28% in Mar, primary rents seen rising 0.22% M/M (range 0.20-0.23) after 0.55% in Apr and 0.19% in Mar. Recall that because the sample from 6 months earlier wasn’t available in April, the BLS looked at the 12-month change for inflation in the sample and used the 6th root of that change (as opposed to the 12th root).
• Lodging (large -ve): Seen moderating notably after being easily the largest surprise in the April report, on average seen riding 0.4% M/M (median 0.1) after a much stronger than expected 2.4% M/M in April. It’s not a uniform view, with an analyst range of -0.6% to 2.5% M/M.
• Airfares (-ve): On average seen rising 2.3% M/M (median 2.0) after the 2.8% M/M in April had somewhat underwhelmed strong expectations as a sharp increase in jet fuel prices continues to feed through. The analyst range of 1.3-3.5% is on the narrower side for this volatile category that doesn’t feed into PCE.
• Apparel (-ve): On average seen rising 0.3% M/M after a surprisingly robust 0.6% M/M in April considering it had already seen two very strong increases of 1.0% in March and 1.3% in Feb in what was its strongest single month since 2018. 

[A quick reminder that the below table shows median/mean figures across all estimates, hence the core CPI median of 0.27% M/M vs the 0.23% if only taking unrounded estimates per the separate table shown later.]