MNI US CPI Preview: Monthly Moderation But Still Too High

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Executive Summary

• Monthly inflation is expected to moderate to a still elevated pace in May, with MNI unrounded consensus pointing to 0.51% M/M for headline CPI and 0.23% M/M for core CPI.
• It should see headline CPI jump further to 4.2% Y/Y with a risk of 4.3% (either strongest since Apr 2023) whilst core CPI would see a more modest acceleration to 2.8-2.9% Y/Y (strongest since Sep 2025).
• Within the monthly drivers, energy prices should see a similar if not slightly stronger increase than in April but with food and core inflation moderating from a strong April.
• For core, expected upside drivers to M/M inflation are relatively limited with highlights being used cars and medical items. Largest downside drivers are rents – after an artificial boost in April – and lodging.
• Supply chain pressures remain unusually elevated per the NY Fed’s GSCPI although the computer software category – notable for its feedthrough to core PCE rather than CPI – may have seen a more modest increase after an extremely strong run in recent months. 
• Core PCE is tentatively seen at a firmer 0.32% M/M (range 0.24-0.37) in May after 0.24% M/M in April. It would see a return of the recent, and rare, trend of core PCE inflation running above core CPI after April’s rent strength boosted core CPI. Indeed, core PCE would accelerate to 3.4% Y/Y for a significant wedge.
• We approach this CPI report after a significant further hawkish adjustment on Friday’s nonfarm payrolls Hidden PDF which has seen a further dissipation of downside risks to the labor side of the dual mandate.
• Inflation upside risks are instead firmly in focus amidst ongoing Middle East tensions. At typing, there is 27.5bp of cumulative hikes priced to end-2026 (off Monday’s earlier fresh hawkish extremes of 31bp) building to 43bp of hikes to mid-2027 for roughly the peak of the temporary hiking cycle.
• The FOMC is now in the media blackout ahead of the Jun 16-17 meeting. That’s unlikely to provide a communications issue unless it’s a particularly strong CPI report, with an added complication that this will be the first meeting with Kevin Warsh as Chair.