MNI US CPI Preview: An Important Pre-FOMC Steer

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Executive Summary

• Analyst unrounded estimates see core CPI inflation accelerating mildly to 0.27% M/M (median, 0.28% average) in May after 0.24% M/M in April.
• We’ve seen an unrounded range of 0.23-0.34% M/M, with some sizeable discrepancies in used cars and lodging away from home as well as a CPI-specific airfares.
• The broad assumption is that May could have started to see a greater tariff impact than April but that firmer increases are more likely to show in summer months.
• Both headline and core CPI Y/Y inflation should firm one to two tenths after lows since early 2021, whilst the six-month core rate should see a similar print after four months running hotter than the Y/Y.
• We have seen preliminary core PCE estimates center on 0.22% M/M for May (median, 0.24% average), due the usual updates after Wednesday’s CPI and Thursday’s PPI. One area to watch in the latter will the extent of a bounce in portfolio management and investment advice after sliding with equities in April.
• The Fed rate path is close to its most hawkish since February, with a next cut fully priced for October.
• A dovish surprise could see a more limited reaction on the assumption that strength is yet to come for consumer prices, unless it’s seen across some of the less volatile services components. On the flipside, an upside surprise can see a further kicking out of rate cut expectations and could tee up a hawkish Fed SEP.