Key Takeaways for the May CPI ReportThe May CPI report is forecast to show continued high inflation due to rising energy prices.Higher fuel prices could begin to bleed through to warehousing, retail, and wholesale trade, among other sectors.Economists don’t expect the Fed to hike interest rates in June, but markets do see an increase happening by year-end.

Economists expect the May Consumer Price Index Report to show inflation remaining high, fueled by higher energy costs in the wake of the Iran war. While the monthly inflation reading is forecast to show modest improvement from April, economists warn that high energy prices could spill over into other sectors in the coming months.

The CPI is forecast to rise 0.5% overall in May from the previous month and 4.2% from a year earlier, according to FactSet. Core CPI, which excludes volatile food and energy prices, is expected to increase 0.3% from April and 2.9% year over year.

Economists say the May report could show a slight improvement over April, when a catch-up reading on housing costs skewed the numbers upward. However, the dominant story concerns resurgent inflation stemming from the Iran war.

The CPI report is “largely going to present a picture that consumer prices overall are still rising at a rate that is faster than two percent and is faster than what policymakers have generally desired,” says Adam Schickling, senior economist at Vanguard.

Despite inflation clocking in hotter than the Federal Reserve would like, economists do not expect the May CPI report to push the central bank to change interest rates at its June meeting. Inflation is still running above target, and labor market conditions remain relatively healthy. However, bond futures traders expect the Fed to raise interest rates before the end of the year.

May CPI Report ForecastsCPI report release date and time: Wednesday, June 12, at 8:30 am ETThe CPI is forecast to rise 0.5% in May after rising 0.6% in April, according to FactSet.Core CPI is forecast to rise 0.3% for the month versus 0.4% in April.The CPI is forecast to rise 4.2% year over year in May after rising 3.8% in April.Core CPI is forecast to rise 2.9% year over year in May versus 2.8% in April.High Energy Prices Add to Inflation Reading

Higher oil prices tied to the Iran war have pushed energy costs higher in recent months and remain a major contributor to headline inflation. The key question for investors is whether that energy-driven inflation will be contained to direct impacts, such as higher gas prices and transportation, or flow through to other parts of the economy.

“We still think that pass-through is going to be relatively limited in the near term,” says Vanguard’s Schickling. “But if oil prices remain above $100-plus per barrel for another three to six months, we’ll start to see more of that pass-through to other parts of the inflation basket.”

Transportation services have already begun to absorb higher fuel costs, and warehousing, retail, and wholesale trade will be areas to watch going forward, Schickling says.

Economists at Deutsche Bank expect the May reading to reflect a 6.8% increase in gas prices, which could boost headline CPI. The bank’s analysts forecast headline CPI to increase 0.51% month over month and 4.29% year over year. They expect core CPI to increase 0.22% month over month and 2.87% year over year. At Bank of America, economists are calling for a 0.46% increase in overall CPI led by rising energy prices, with the year-over-year rate increasing 4.2%, the highest since April 2023. Meanwhile, core CPI is expected to cool at 0.2%, amid modest core goods inflation, a normalization in rent after the April adjustment, and softer core services excluding rents. Bank of America sees the CPI up 2.8% year over year.

Fed Expected to Hold Rates Steady

Following last week’s stronger-than-expected May jobs report, more in the bond market expect that the Fed will raise interest rates later this year. According to the CME FedWatch tool, the chances of at least one interest rate increase in 2026 are more than 70%.

“Indeed, as inflation risks rise and labor market risks recede, Fed policy may have become overinsured against downside risks to the labor market, and prospects for future rate hikes might best be interpreted as a prudent reversal of this insurance as the balance of risks tilts towards inflation,” Deutsche Bank wrote. “This sentiment seems to be shared by consumers already.”