- The US Consumer Price Index is forecast to rise 3.4% YoY in May, at the same pace as in April.
- Annual core CPI inflation is expected to inch lower from 3.6% in April to 3.5% in May.
- The inflation data could impact the US Dollar value and the September rate cut expectations.
The Bureau of Labor Statistics (BLS) is gearing up to release the Consumer Price Index (CPI) data for May from the United States (US) on Wednesday at 12:30 GMT.
Investors are on edge as any surprises in the US inflation report could significantly impact how the market views the likelihood of the Federal Reserve (Fed) cutting interest rates in September.
What to Expect in the Next CPI Report?
Analysts anticipate that inflation in the US, as measured by the CPI, will maintain its pace from April, with a 3.4% increase expected for May. The core CPI, which excludes volatile food and energy prices, is predicted to dip slightly to 3.5% from April’s 3.6%.
The monthly CPI is forecasted to rise by 0.1% in May, a decrease from April’s 0.3% growth. Similarly, the core CPI is expected to remain steady at 0.3% for the month.
Federal Reserve Chairman Jerome Powell’s recent comments have hinted at a more cautious approach to interest rates. Powell’s remarks came after April’s CPI softened, aligning with market expectations of a potential Fed rate cut in September.
However, optimism regarding a rate cut waned following a robust US labor market report released in May. The report revealed a significant increase in Nonfarm Payrolls and Average Hourly Earnings, suggesting a strong labor market and higher wage inflation. This tempered expectations of a rate cut in September.
Previewing the May inflation report, analysts anticipate a potential slowdown in core inflation, primarily due to a drop in energy prices.
How Could the CPI Report Affect EUR/USD?
Despite potential downward surprises in CPI figures due to falling energy prices, the US Dollar’s reaction may be muted ahead of the Fed’s policy announcements.
A core CPI increase of 0.3% or more could strengthen confidence in the Fed’s pause, particularly after positive labor market data. This could lead to further gains for the US Dollar. Conversely, a lower-than-expected core inflation figure could revive expectations of a September rate cut, potentially weakening the US Dollar.
In conclusion, while the CPI report may influence short-term market sentiment, the Fed’s policy decisions remain the focal point for investors.