May CPI Preview: Tariffs May Impact Inflation, Says Michelle Girard

CPI Data Outlook

• 💡 The upcoming May Consumer Price Index (CPI) data, due at 8:30 AM ET, is expected to show less favorable numbers than the previous month.
• 🎯 The core rate, excluding food and energy, is projected to see a 0.31% gain, potentially reaching 0.41%, which is higher than recent readings.

Impact of Tariffs on Goods

• 📈 Tariffs implemented in April are anticipated to exert upward pressure on prices, particularly in the goods sector.
• 📦 This impact is expected to be visible in categories like apparel, home furnishings, and recreation goods, with a projected 0.6% gain in goods prices excluding food and energy.

Year-Over-Year Inflation Trends

• ⚠️ The year-over-year inflation rate, which has been declining, is expected to rise from a four-year low of 2.8% to 3% in May.
• 🚀 This upward trend is predicted to continue throughout the remainder of the year.

Economic Uncertainty and Fed's Stance

• 🧐 While recent inflation readings have been surprisingly benign, there's uncertainty about the full impact of tariffs, with potential residual effects expected.
• ⚖️ Companies may either pass on price increases to consumers or absorb them, potentially impacting profit margins.
• 🔍 The Federal Reserve is closely monitoring these developments to understand whether inflation rises or if economic slowdown occurs due to pressure on businesses.
• ⏳ The Fed's current strategy is to wait and see until the path of tariffs and their economic manifestations become clearer.