Based on forecasts from a range of institutions, the market consensus expects May headline CPI to rise between 4.2% and 4.3% year-on-year, accelerating further from April’s 3.8% reading. A headline CPI figure above 4% has already become the market consensus, with the only debate centered on whether the final figure will come in at 4.2% or 4.3%.

Core CPI, meanwhile, is expected to remain elevated but relatively stable, with annual growth projected to range between 2.8% and 2.9%, largely unchanged or only slightly higher than April’s 2.8%.

Energy prices remain the largest driving force behind inflation. The situation in Iran continued to fluctuate throughout May, pushing the average Brent crude oil price higher to US$103.7 per barrel. As a result, the energy component of CPI could still rise by as much as 6.3% month-on-month during May.

The ongoing oil shock is not only reflected in stronger energy prices, but is also being transmitted into core services through higher airline ticket prices.

Another important factor is the continued pass-through effect of tariffs and supply-chain disruptions. Some analysts estimate that higher tariffs have added more than 0.5 percentage points to inflation. Costs for key industrial inputs such as steel, aluminum, and copper continue to rise. Among the 18 manufacturing industries surveyed, 16 reported higher purchasing costs. Input-price indices remain near their highest levels since April 2022, while delivery times continue to lengthen.

Potential Implications for the June Federal Reserve Meeting

The May CPI report will be released just one week before the Federal Reserve’s June 16–17 policy meeting, which will also be the first FOMC meeting chaired by newly appointed Fed Chair Kevin Warsh.

A Reuters survey published on June 9 showed that approximately 70% of the 102 economists surveyed expect the Federal Reserve to keep interest rates unchanged for the remainder of 2026.

However, interest-rate futures markets tell a different story. Market pricing currently reflects expectations of further tightening, with the probability of at least one additional rate hike before year-end approaching 75%.

China International Capital Corporation (CICC) provides a useful analytical framework:

• If crude oil prices remain above US$100 per barrel during the second half of the year, the Federal Reserve is unlikely to cut rates.
• If oil prices fall back into the US$80–90 range, CPI could decline below 3%, leaving room for future rate cuts.
• If oil prices remain above US$120 per barrel, headline CPI could exceed 4.5%, creating pressure for additional rate hikes.

The continued transmission of higher energy prices and tariffs may push core inflation toward 3.0% year-on-year in June. There is also upside risk if rising aviation fuel costs are passed through to airline ticket prices more aggressively than expected.

Against the backdrop of ongoing uncertainty surrounding US-Iran relations, any inflation reading above expectations could become a negative catalyst for equities and potentially trigger a short-term market selloff.

Overall, the May CPI report is expected to show headline inflation rising to a three-year high, while core inflation remains elevated but relatively stable. Energy prices continue to be the primary driver of inflation, but structural factors also deserve close attention.

Ahead of the June FOMC meeting, the market’s assessment of the inflation outlook and future monetary policy path is likely to be recalibrated significantly once this data is released.