PRIMER - US CPI data for May is due at 13:30BST/08:30EDT

EXPECTATIONS: US CPI data for May is expected to see the headline rise 0.5% M/M (prev. 0.6%), driven primarily by another jump in energy prices, with the annual rate climbing to 4.2% Y/Y (prev. 3.8%), the highest since April 2023; meanwhile, core inflation is seen rising 0.3% M/M (prev. 0.4%) and the annual rate of core CPI is expected to rise to 2.9% Y/Y (prev. 2.8%).
NOWCASTS: The Cleveland Fed’s inflation nowcasting model sees May headline CPI at +0.46% M/M and 4.18% Y/Y, with the core rate at +0.23% M/M and 2.82% Y/Y. Ahead, its June modelling sees headline CPI at +0.12% M/M and 4.05% Y/Y, with a June core rate of +0.23% M/M and 2.83% Y/Y.
DRIVERS: BofA and Citi are at or below consensus on core, forecasting +0.20% and +0.22% M/M respectively; both expect shelter inflation to normalise following April’s outsized print, which was distorted by government shutdown-related measurement issues; BofA specifically pencilled in OER at +0.26% M/M and rent at +0.25% M/M. Core goods and other services are also expected to print modestly. A key forward-looking risk flagged by BofA is that while most tariff-driven inflation has run its course, Iran war-related supply chain pressures are building and could push core goods inflation firmer in H2 of this year.
PCE IMPLICATIONS: Analysts will use the CPI and PPI data to model how the core PCE (the Fed’s preferred gauge) will come in; notably, core PCE has been running above core CPI since November, and that wedge looks set to persist; BofA initialised its core PCE tracking at +0.17% M/M (and 3.2% Y/Y) but flags upside risk from portfolio management fees; Citi expects a considerably firmer +0.37% M/M, driven by rising equity prices and AI-related components. The Cleveland Fed’s nowcast models May PCE headline at +0.4% M/M and 3.99% Y/Y; for June, headline PCE is seen at +0.2% M/M and 3.9% Y/Y, with core PCE at +0.27% M/M and 3.34% Y/Y.