For the first time since June 2020, the Consumer Price Index (CPI) report will be released on the same day as the Federal Open Market Committee (FOMC) meeting.

This sets up a potentially volatile Wednesday for financial markets.

Following three consecutive months of higher-than-expected inflation readings in the first quarter of 2024, April's data showed an easing in price pressures, aligning with forecasts.

The new CPI data will thus be crucial in determining if inflationary pressures are continuing to decline, which could support hopes of reaching the Federal Reserve's 2% target.

This heightens the significance of the May inflation report, due from the Bureau of Labor Statistics at 8:30 a.m. on Wednesday.

The outcome of the May inflation report will also heavily influence Fed Chair Jerome Powell's stance during his press conference on the same day.

A softer inflation reading could bolster the case for interest rate cuts down the road this year, while a higher-than-expected number might necessitate a more aggressive approach, probably reiterating the need to keep rates high for longer.

Market participants currently estimate a 50-50 chance of a rate cut in September, with expectations of only one fully priced rate cut by year-end.

May Inflation Report Preview: What Do Economists Expect?

  • The consensus among economists, as compiled by Econoday, forecasts that the headline annual inflation rate will hold steady at 3.4%.
  • On a monthly basis, the overall CPI is expected to advance by 0.1%, down from April's 0.3% rise.
  • The core annual inflation rate, which excludes volatile food and energy prices, is projected to remain at 3.6%, , with a monthly advance of 0.3%, unchanged from April.
Goldman Sachs economist Manuel Abecasis expects a slower pace of inflation in sectors such as consumer electronics and personal care, which should reflect in the May data. He also predicts a continued rise in car insurance prices, albeit at a slower pace, and stable rent and Owner's Equivalent Rent (OER) inflation rates.

"Going forward, we expect monthly core CPI inflation to remain in the 0.2-0.3% range for the next few months before settling around 0.2% by end-2024. We forecast year-over-year core CPI inflation of 3.5% and core PCE inflation of 2.8% in December 2024," Abecasis stated.

Prominent veteran market analyst Ed Yardeni believes the May CPI report will confirm ongoing moderation in inflation.

"The Cleveland Fed's Inflation Nowcasting model shows headline and core CPI rose 3.36% and 3.55% year-over-year in May, which would be the lowest annual core inflation reading since April 2021," he noted.

Yardeni also expects a decline in shelter inflation and used car prices, with hopes that other auto-related consumer prices will stabilize.

Bank of America's economist Michael Gapen sees the May report continuing the positive trend from April.

"After averaging 0.4% month-over-month from January through March, inflation took a step in the right direction in April. We expect core and headline CPI at 0.3% and 0.1% month-over-month for May, respectively, keeping annual rates unchanged from April at 3.6% and 3.4%," Gapen commented.

Prior Market Reactions To The CPI Report

The release of April's CPI report on May 15, 2024, triggered rallies across stocks, bonds, gold, and speculative assets.

  • The S&P 500, as tracked by the SPDR S&P 500 ETF Trust (SPY  ), rose by 1.2% on that day.
  • The tech-heavy Nasdaq 100, monitored through the Invesco QQQ Trust (QQQ  ), rallied 1.6%.
  • Long-dated bond yield fell, pushing the iShares 20+ Year Treasury Bond ETF (TLT  ) up by 1.4%.
  • Gold, tracked by the SPDR Gold Trust (GLD  ), rose 1.3%.
  • Bitcoin skyrocketed 7.4%, marking its strongest day in two months, the third strongest year to date.
  • A measure of the dollar, as gauged by the Invesco DB USD Index Bullish Fund ETF (UUP  ), fell 0.7%, recording its worst 1-day performance since mid-December 2023.