Economic Markets Prepare for a Pivotal Day ahead

The Consumer Price Index report for May is set to be released today, and while it is not expected to show a significant slowdown in inflation, it could indicate that the high levels of inflation witnessed in the first quarter have subsided. In April, the inflation report showed a more moderate increase compared to the previous months, which led to record highs in US stock indexes.

Economists are predicting that prices in May only increased by 0.1% from April, mainly due to lower gas prices and stable food prices. However, the annual rate of inflation is anticipated to remain steady at 3.4%, based on FactSet consensus estimates. If the 0.1% increase from April were to occur, it would be the smallest monthly gain since October 2023.

The Core Consumer Price Index, which excludes the volatile food and energy categories, is expected to rise by 0.3% for the second consecutive month. This would bring the annual core inflation rate down from 3.6% to 3.5%, reaching a new three-year low. The biggest challenge to slowing down the CPI remains shelter inflation, and it is unclear when the moderation in market-rate rents will be reflected in the inflation measure.

Overall, the May CPI data is expected to show some positive signs of moderating inflation, but it may not be strong enough to suggest a rate cut before September, according to Scott Anderson, chief economist with BMO.