US CPI Preview: May 2023
The next set of inflation numbers are expected to further dispel the fallacy that the US remains in the grip of a major inflation problem - but will the Fed keep focusing on lagging price indicators?
Executive summary
May’s US CPI report is expected to reveal significant additional disinflation. My forecasts are as follows:
Headline CPI: 4.2% (vs 4.1% consensus, and 4.9% in April)
Core CPI: 5.4% (vs 5.3% consensus, and 5.5% in April)
Headline CPI ex-shelter: 2.3% (vs 3.4% in April)
Core CPI ex-shelter: 3.5% (vs 3.7% in April)
With the Fed continuing to articulate that they want clear evidence that inflation is headed to its 2% target before loosening its aggressive tightening, if May’s CPI report comes in as I forecast, this should give the Fed plenty of evidence — particularly on an ex-lagging shelter basis.
Though as opposed to recognising the clear disinflation that continues to take shape, the Fed may instead continue to focus its attention on the most lagging component of the price cycle, being services prices.
Given that services price growth is expected to still be broadly elevated in May, focusing on this sub-component of the CPI is likely to cause the Fed to increasingly overtigh…