US Headline Inflation Forecast To Hit Three Year High As Oil Shock Persists
Consumer prices are expected to accelerate in May
- Energy costs remain dominant driver of price pressures - Core inflation expected to stay relatively contained - Strong jobs market and oil shock complicate Fed outlook - Data set for release 08:30 EST/ 12:30 GMT
Data from the Bureau of Labor Statistics is expected to show that elevated energy costs continued to weigh on US households as the Iran conflict enters its fifteenth week.
Headline CPI is forecast to accelerate to 4.3% y/y in May from 3.8% previously, potentially reaching its highest level since April 2023. On a monthly basis, prices are expected to rise 0.5%, easing slightly from April's 0.6% increase. Annual core CPI is projected to edge up to 2.9% from 2.8%, while the monthly core measure is expected to rise 0.3%, a tenth below April's pace.
Last month, the jump in inflation was largely attributed to higher energy prices stemming from the conflict in Iran and disruptions to shipping through the Strait of Hormuz. While direct hostilities have largely subsided, energy markets remain on edge, with crude oil averaging around USD 94 per barrel over the past month.
Shortly after April's CPI release, Federal Reserve Bank of Chicago President Austan Goolsbee said he was "disappointed" by the data, adding that persistent services inflation concerned him more than rising "oil and tariff-related things."
Energy spillovers
Energy-related costs are again expected to account for the largest share of the increase in headline inflation. However, underlying price pressures have remained comparatively contained.
"We look for core inflation to advance to 0.23% m/m in May, largely owing to shelter normalisation following its temporary boost to prices in the last report," TD Securities said. "The core goods ex-vehicles segment should provide the bulk of the increase in goods prices, offset by another decline in used vehicles."
Implications for rates
The Federal Open Market Committee is due to conclude its next policy meeting on 17 June. Markets overwhelmingly expect the central bank, now led by Fed Chair Kevin Warsh, to leave the federal funds target range unchanged at 3.50%-3.75%.
President Donald Trump has repeatedly called for lower interest rates, a position that frequently put him at odds with former Fed Chair Jerome Powell.
At his Senate confirmation hearing, Warsh argued that traditional inflation metrics are "quite imperfect" and said policymakers should focus on measures that capture the "underlying, generalised change in prices in the economy" rather than one-off shocks driven by geopolitics, tariffs, food or energy costs.
Stronger-than-expected labour market data through the first half of the year, combined with elevated oil prices and lingering tariff pass-through effects, have shifted market expectations away from rate cuts and towards the possibility of further policy tightening.
TD Securities noted that inflation expectations remain particularly sensitive to energy prices. "However, we expect the Fed will look through spikes in near-term expectations, while any increases in long-term expectations could prove short-lived. While five-year expectations in the University of Michigan survey have started increasing, that survey has recently been an outlier that the Fed has downplayed."
TD Securities, Bloomberg
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- Energy costs remain dominant driver of price pressures
- Core inflation expected to stay relatively contained
- Strong jobs market and oil shock complicate Fed outlook
- Data set for release 08:30 EST/ 12:30 GMT
By Harry Daniels
LiveSquawk News
@HarryDaniels71
18:00 GMT | 09 Jun 2026
Data from the Bureau of Labor Statistics is expected to show that elevated energy costs continued to weigh on US households as the Iran conflict enters its fifteenth week.
Headline CPI is forecast to accelerate to 4.3% y/y in May from 3.8% previously, potentially reaching its highest level since April 2023. On a monthly basis, prices are expected to rise 0.5%, easing slightly from April's 0.6% increase. Annual core CPI is projected to edge up to 2.9% from 2.8%, while the monthly core measure is expected to rise 0.3%, a tenth below April's pace.
Last month, the jump in inflation was largely attributed to higher energy prices stemming from the conflict in Iran and disruptions to shipping through the Strait of Hormuz. While direct hostilities have largely subsided, energy markets remain on edge, with crude oil averaging around USD 94 per barrel over the past month.
Shortly after April's CPI release, Federal Reserve Bank of Chicago President Austan Goolsbee said he was "disappointed" by the data, adding that persistent services inflation concerned him more than rising "oil and tariff-related things."
Energy-related costs are again expected to account for the largest share of the increase in headline inflation. However, underlying price pressures have remained comparatively contained.
"We look for core inflation to advance to 0.23% m/m in May, largely owing to shelter normalisation following its temporary boost to prices in the last report," TD Securities said. "The core goods ex-vehicles segment should provide the bulk of the increase in goods prices, offset by another decline in used vehicles."
The Federal Open Market Committee is due to conclude its next policy meeting on 17 June. Markets overwhelmingly expect the central bank, now led by Fed Chair Kevin Warsh, to leave the federal funds target range unchanged at 3.50%-3.75%.
President Donald Trump has repeatedly called for lower interest rates, a position that frequently put him at odds with former Fed Chair Jerome Powell.
At his Senate confirmation hearing, Warsh argued that traditional inflation metrics are "quite imperfect" and said policymakers should focus on measures that capture the "underlying, generalised change in prices in the economy" rather than one-off shocks driven by geopolitics, tariffs, food or energy costs.
Stronger-than-expected labour market data through the first half of the year, combined with elevated oil prices and lingering tariff pass-through effects, have shifted market expectations away from rate cuts and towards the possibility of further policy tightening.
TD Securities noted that inflation expectations remain particularly sensitive to energy prices. "However, we expect the Fed will look through spikes in near-term expectations, while any increases in long-term expectations could prove short-lived. While five-year expectations in the University of Michigan survey have started increasing, that survey has recently been an outlier that the Fed has downplayed."