US consumer prices in May are likely to have risen by the most in almost 40 years, data will show on Friday.
The Bureau of Labor Statistics’ May consumer price index (CPI) last month is expected to reflect an 8.3% yoy increase, flat from the April print, according to consensus estimates compiled by Bloomberg. On a monthly basis, economists are forecasting inflation to have risen at the broadest pace at an accelerated pace of 0.7%, compared with 0.3% in April.
Ahead of Friday’s report, experts are predicting that a rise in gasoline prices will prove to be the inflation driver for May after they recently rebounded to all-time highs. In April, a slowdown in energy prices provided temporary relief from inflation after Russia’s invasion of Ukraine in March rocked global commodity markets.
“Current year-over-year rates are benefiting from base effects, but these will no longer be helpful by mid-summer,” Wells Fargo economists said in a statement Wednesday. “Additionally, gas prices skyrocketed in May, taking back the short-lived respite they offered in April.”
Core CPI – which excludes the highly volatile food and energy sectors and will be closely watched by policymakers – could be a small bright spot in Friday’s report.
According to Bloomberg data, economists expect core inflation to rise 5.9% yoy and 0.5% mom. Those numbers would mark a slight slowdown from gains of 6.5% and 0.6% in April, respectively.
Aside from serving as a measure of how much Americans shell out each day for groceries, gas, homes and other goods and services, the May CPI comes just before the Federal Reserve is ready to raise interest rates at its policy meeting continue to increase next week .
SAN ANSELMO, CALIFORNIA – JUNE 08: A customer shops for meat at a Safeway store on June 08, 2022 in San Anselmo, California. The US Department of Labor is due to release inflation numbers for May this Friday, after reporting a rate of 8.3% in April this year. (Photo by Justin Sullivan/Getty Images)
Investors expect the Fed to hike interest rates by 50 basis points or 0.50% on June 15; an increase of the same magnitude is expected in July. Sustained inflationary readings could also set the stage for an increase of this magnitude in the fall.
The story goes on
“Headline CPI is likely to remain above 8%, making another 50 basis point increase in September increasingly likely,” KPMG Senior Economist Tim Mahedy said in a note. “I said last month that we need to see headline CPI fall below 8% or we see an increase in the risk of the Fed pushing rates above neutral in the fourth quarter.”
“It looks like we’re heading for another read above 8% in May, which just means we need to see a big drop in June,” Mahedy said. “We are running out of time and there are many reasons to believe that inflation will ease, but it will be more gradual than the Fed would like.”
Only three of the last 24 months have CPI headlines come in weaker than expected – June 2020, November 2020 and September 2021 – according to the date from Bespoke Investment Group, and all three reports came before Fed Chair Jerome Powell called it quits , which described inflation as “temporary.”
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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