US: CPI inflation expected to slip to 1.9% y/y in May - TDS

US Headline CPI inflation is expected to slip to 1.9% y/y in May, with prices down 0.1% on the month, according to the analysts at TDS.

Key Quotes

“We look for energy prices to continue to decelerate, pulled lower by falling gasoline prices. On the other hand, steady gains in food prices should support headline inflation on a y/y basis. We look for another modest 0.1% gain in the core, driving the core inflation rate lower to 1.8% y/y. While fundamentals such as rising import and core producer prices as well as firming wage growth point to a return to 0.2% or better prints in the core index, we think it may be too soon to see a solid rebound. A sustained drag from wireless services prices and vehicle prices is likely this month, while we see limited scope for stronger rebounds in other categories to compensate.”

“If May yields another a weak core print, we see limited impact on the June FOMC meeting later in the afternoon. The report, however, is of more significance to the path of policy rates for the rest of the year. While Fed officials are likely to continue to view the recent weakness as transitory and believe a firming trend remains in place, they will watch inflation developments ever more closely. Moreover, continued softness may alter their policy expectations, as some officials including Governor Brainard have noted.”