Markets prepare for a significant day ahead for the economy

Today’s inflation report is expected to show no significant slowdown, but could provide additional evidence that the high inflation seen in the first quarter has subsided. While April’s report showed a cooler inflation rate, economists are predicting a modest 0.1% growth in prices for May due to falling gas prices and low food prices. The annual rate is expected to remain steady at 3.4%, based on FactSet consensus estimates.

Core CPI, which excludes food and energy prices, is anticipated to increase by 0.3% for the second consecutive month. This would lower annual core inflation from 3.6% to 3.5%, which would be a three-year low. The biggest challenge to slowing CPI remains in shelter inflation, with analysts waiting to see when the moderation in market-rate rents will impact the inflation gauge.

Overall, the May CPI data is expected to provide some positive signs of moderating inflation, but it may not be enough to prompt a rate cut before September. Scott Anderson, chief economist with BMO, believes that while there may be encouraging evidence of inflation easing, it will not be definitive enough to warrant a rate cut in the near future.