U.S. inflation accelerated in May, matching consensus expectations, as the consumer price index (CPI) rose 0.5% from April and 4.2% from a year earlier—the fastest pace since early 2023, according to data from the U.S. Bureau of Labor Statistics. Here is what economists had to say about the latest numbers.
Total Inflation May Have Peaked in May: Desjardins
Desjardins lead economist Francis Genereux noted that U.S. inflation dynamics remain closely tied to geopolitical events in the Middle East, as energy prices made a significant contribution to the increase in total CPI. While tensions with Iran over the Strait of Hormuz remain highly volatile, recent developments suggest a slight easing. Barring a renewed surge in oil and gasoline prices, total inflation may have reached its peak in May, although upside risks remain.
“For now, our forecasts suggest that year-over-year total CPI inflation will fall back below four percent as early as June,” Genereux said. He added that if core inflation remains relatively stable as expected, the Federal Reserve and its new chair Kevin Warsh are likely to keep policy rates unchanged at next week’s meeting.
‘Red-Hot Inflation Print’ Will Keep Fed on the Sidelines: CIBC Economics
Canadian Imperial Bank of Commerce economist Helen Lao said May’s “red-hot inflation print,” being above four percent on an annual basis, will keep the Fed on the sidelines in the near term. With a stable labor market, policymakers will be focused on containing inflation expectations and will need to see oil prices head sustainably lower in order to cut rates. She added that bond yields eased after the release, as the monthly growth of core prices was slightly weaker than consensus expectations.
‘Inflation Report That Chair Warsh Was Dreaming About’: Scotiabank
With core CPI coming in light and core goods prices slipping, “this was the inflation report that Chair Warsh was dreaming about,” said Derek Holt, vice president and head of capital markets economics at the Bank of Nova Scotia. Holt noted that core CPI inflation climbing down from a gain of about double the prior month indicates little to no sustained pass-through of the energy shock into underlying inflation.
He said the soft underlying inflation and details motivated a slightly lower U.S. two-year Treasury yield, adding that markets may be holding back in their reaction because escalating tensions in the Middle East are overshadowing data, with conflict and supply chain challenges likely to persist.
Supports Case for Extended Fed Pause: TD Economics
Thomas Feltmate, director and senior economist at Toronto-Dominion Bank, said they expect core measures of inflation to remain elevated through year-end before drifting lower in the first half of 2027, which would support the case for an extended pause by the Fed.
Feltmate noted that the effects of the Iran war continued to surface in May, with headline inflation climbing to a three-year high as cost pressures started to be felt beyond higher prices at the pump, though they were still relatively contained. Airfares, for example, were up over eight percent since the start of the war, which is atop lingering tariff effects on prices and still elevated services.
“The FOMC is very likely to telegraph a ‘higher for longer’ monetary policy stance at next week’s interest rate announcement, by dropping its easing bias and perhaps showing some upward drift in the median Fed funds forecast, which currently shows 25 basis points of easing this year and next,” he said.
