Our forecast for the May consumer price index implies an increase of 0.5% on the month which should translate to a 4.2% top-line increase from one year ago. Our forecast also implies a net decline in real wages of 0.8% over the past 12 months.
The CPI data for May, which will be released on Wednesday, will most likely point toward a near-term top in inflation—we think it continues to rise slowly toward 4.5% as elevated energy, transportation, food and fertilizer costs work their way through the economy.
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Inflation will rise at a slower pace than the past three months, but that easing understates the risk to the outlook as stress from the supply shock takes hold.
We remain concerned that operational stress will hit a floor in September or early October, which will unleash a second round of sharp increases in food, apparel and, most importantly, service sector prices.
As the drawdown in oil and refined products accelerates, we think that the current operational stress in the system will increase unless a realistic roadmap to a reopening of the Strait of Hormuz is put forward.
