Bank of America’s May US CPI Inflation Preview Report suggests that the Consumer Price Index (CPI) is expected to remain stable at levels considered somewhat elevated. The forecast indicates that the headline CPI is projected to increase by 0.1% month-on-month (unrounded at 0.13%), with a year-on-year rate of 3.4% and a headline NSA index of 314.476. Additionally, core CPI is anticipated to rise by 0.3% month-on-month (unrounded at 0.30%), keeping the year-on-year rate unchanged at 3.6%. While this forecast isn’t alarming, it may not be particularly reassuring for the Federal Reserve either.
Consumer relief is expected at the pump, as energy prices are likely to have decreased in May, primarily driven by a drop in gasoline prices. This decrease comes as a welcome change for consumers following increases in gas prices in April and March. With a decline in crude prices, gas prices are expected to continue falling in the short term, exerting downward pressure on headline CPI. Food prices, on the other hand, are likely to have increased by 0.1% month-on-month due to rises in food away from home.
In a rare occurrence, core goods prices are predicted to see a slight increase after two consecutive declines, mainly fueled by upticks in used cars and apparel prices. However, the rise in used car prices is expected to be temporary, as wholesale prices continue to decrease, and new car supplies recover.
Conversely, core services are anticipated to show modest progress, with shelter inflation likely to strengthen slightly due to higher lodging away from home prices. However, core services excluding shelter are forecast to exhibit some moderation, with softer increases expected in various service categories. The overall trend suggests a gradual improvement in services inflation, particularly driven by moderations in motor vehicle insurance, rent, and Owner’s Equivalent Rent (OER).
Bank of America’s report indicates that the Federal Reserve remains on course for one rate cut this year.
