Inflation likely remained red-hot as gas prices surged

US consumer prices likely rose at the fastest rate in nearly 40 years in May, data is expected to show Friday.

The Bureau of Labor Statistics’ May Consumer Price Index (CPI) is expected to reflect a year-over-year increase of 8.3% last month, unchanged from April’s print, according to consensus estimates compiled by Bloomberg. On a monthly basis, economists forecast the broadest measure of inflation rose at an accelerated pace of 0.7%, compared to 0.3% in April.

Ahead of Friday’s report, experts predict a surge in gasoline prices will prove a driver of inflation for May after a recent rise back to all-time highs. In April, a moderation in the price of energy offered a temporary relief to inflation after Russia’s invasion of Ukraine rocked global commodity markets in March.

“Current year-ago rates are benefiting from base effects, but by mid-summer these will no longer be of help,” economists at Wells Fargo said in a note Wednesday. “In addition, gas prices soared in May, taking back the short-lived reprieve that they offered in April.”

Core CPI — which excludes the highly volatile food and energy sectors and is closely watched by policymakers — may be a bit of a bright spot in Friday’s report.

Economists expect core inflation rose 5.9% year-over-year and 0.5% month-on-month, per Bloomberg data. These figures would mark a slight cooldown from increases of 6.5% and 0.6%, respectively, in April.

Beyond serving as a gauge of the costs everyday Americans shell out for groceries, gas, housing and other goods and services, May’s consumer price index comes just before the Federal Reserve is poised to further ramp up interest rates at its policy-setting meeting next week .

SAN ANSELMO, CALIFORNIA – JUNE 08: A customer shops for meat at a Safeway store on June 08, 2022 in San Anselmo, California. The US Labor Department will report May’s inflation numbers this Friday after reporting a rate of 8.3% in April of this year. (Photo by Justin Sullivan/Getty Images)

Investors anticipate the Fed will raise its benchmark interest rate by 50 basis points, or 0.50%, on June 15; an increase of the same magnitude is expected in July. Persistent inflation readings may set the table for an increase of this magnitude in the fall as well.

“Headline CPI will probably stay 8%, which makes another 50 bps hike in September above similar,” KPMG Senior Economist Tim Mahedy said in a note. “I said last month that we needed to see headline CPI drop below 8% or we’d see a jump in the risk of the Fed pushing rates above neutral in the fourth quarter.”

“It looks like we’re headed for another reading above 8% in May, which just means we need to see a large drop in June,” Mahedy said. “We’re running out of time, and there are a lot of reasons to think that inflation will ease, but it will be more gradual than the Fed would like.”

Only three of the past 24 months have seen headline CPI come in weaker than expected – June 2020, November 2020 and September 2021 – according to date from Bespoke Investment Group, and all three reports came before Fed Chair Jerome Powell abandoned language which described inflation as “transitory.”

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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