Recent economic reports confirm that the war in Iran, which has caused energy prices to spike, is accelerating inflation. Indeed, the Consumer Price Index (CPI) for April rose at its fastest annual pace in nearly two years.
Energy costs had the biggest impact on the April CPI report. “The index for energy rose 3.8 percent in April, accounting for over forty percent of the monthly all items increase,” wrote the Bureau of Labor Statistics (BLS). Compared to the year-ago period, the energy index was up 17.8% and the gasoline index was 28.4% higher.
And unless something changes in the Middle East, “gasoline and other fuel prices will continue rising in the coming months,” writes David Payne, staff economist and reporter for The Kiplinger Letter, in the Kiplinger inflation outlook. “Food prices will also start rising in the future, as one-third of the world’s fertilizer supply is produced in the Persian Gulf region, along with 10% of aluminum, used in everything from jets to soda cans.”
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Higher inflation will make the Federal Reserve more hesitant to lower interest rates — especially amid signs the labor market is stabilizing. According to CME Group FedWatch, futures traders don’t expect any rate cuts at all in 2026. Earlier this year, betting odds were for at least one quarter-point cut.
The Federal Open Market Committee may even consider rate hikes this year, notes Payne. “The Fed generally discounts energy price fluctuations in its deliberations on interest rate policy. But the central bank will also note that ‘core’ inflation (excluding food and energy) is likely to creep upwards as the year progresses,” he explains.
What is the CPI?
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“CPI is a measure of the average price of that basket of goods and services over time,” writes Kiplinger contributor Coryanne Hicks. “The specific goods and services within the CPI basket are based on information that around 24,000 families and individuals give the U.S. Bureau of Labor Statistics on what they buy.”
The two primary measures of CPI are headline, which is the total inflation rate experienced by households, and core CPI, which excludes volatile food and energy prices.
Core CPI accelerated in April, rising 0.4% month over month and 2.8% year over year, though this was largely due to a one-off adjustment to the rent calculation following last fall’s government shutdown. This will not be repeated, says Payne, and shelter costs “will likely return to their normal pace of moderate increases.”
When does the May CPI come out?
The Bureau of Labor Statistics will release the May CPI report at 8:30 am Eastern Standard Time on Wednesday, June 10.
Headline CPI is expected to be up 0.5% from April to May and 4.2% from the year prior. Core CPI is forecast to rise 0.3% month over month and 2.9% year over year.
Ahead of the May CPI report, we looked at what economists, strategists and other experts on Wall Street expect the data to show. You’ll find these outlooks, edited at times for brevity, below.
What to expect from the May CPI report
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“We forecast that headline CPI rose by 0.46% month over month, driven by another jump in energy prices. The year-over-year rate should increase from 3.8% to 4.2% — the highest since April 2023. Meanwhile, core CPI should be cooler at 0.20% (2.8% y/y). This reflects our expectations for modest core goods (+0.05% m/m), a normalization in rent, and softer core services ex-rents. For the policy outlook, the focus will likely be on the implications for core PCE inflation, especially because it has been running above CPI since last November.” – BofA Securities economists
“The U.S. May inflation report will be one of the most closely watched releases of the week. Headline CPI is expected to rise to 4.2% year on year from 3.8%, while core inflation is forecast to edge up to 2.9%. A stronger-than-expected reading could reinforce expectations that the Federal Reserve will keep rates higher for longer, potentially strengthening the dollar and increasing volatility across equities, bonds and commodities.” – Lukman Otunuga, Head of Market Research at FXTM
“Inflation pressures are expected to remain concentrated in food and energy, with core CPI expected to slow on a monthly basis. The key question is whether that dynamic begins to shift, particularly if volatility in energy prices tied to the Middle East persists. Any signs of broader price pressures would reinforce the Fed’s cautious stance, while a contained report could reinforce the case that recent inflation pressures are temporary and supply-driven rather than demand-led.” – Jason Pride, Chief of Investment Strategy & Research and Michael Reynolds, Vice President of Investment Strategy at Glenmede
“The bigger concern is not the headline number which is expected to jump from 3.8% to 4.2%. That would be its highest level since March of 2023. Headline includes those volatile gas and food items that can be temporary, but it’s those ‘sticky’ items that can be embedded. The concern is that these categories, such as shelter, insurance and services, may keep inflation above the Fed’s comfort zone as they can remain higher for longer. A ‘hot’ CPI print driven by gasoline is usually less alarming, but a persistent rise in shelter and services could be a trend that could take time to reverse.” – Jay Woods, Chief Market Strategist at Freedom Capital Markets
“The inflationary effects of the Iran conflict continue to ripple through consumer prices. We estimate the Consumer Price Index rose 0.52% in May, which would push the year-over-year rate up to a three-year high of 4.2%. Higher costs of necessities continue to pinch consumers. We estimate energy goods (primarily gasoline) rose 8% in May, while food prices advanced 0.3%.” – Wells Fargo economists