UOB’s Senior Economist Alvin Liew notes that United States (US) inflation pressures have broadened beyond energy, with April Consumer Price Index (CPI) and Producer Price Index (PPI) both reaccelerating and core measures drifting further above the Federal Reserve’s 2% target. Liew now forecasts headline CPI at 3.7% and core at 3.0% in 2026, sees upside risks from Oil, and expects inflation only to move closer to 2% in 2027.

Broader price pressures and upside risks

"We now expect headline CPI inflation to average higher at 3.7% in 2026 (previous: 3.3%) while core CPI inflation will average close to 3.0% (previous: 2.8%), above the long term 2% target but within tolerable ranges for core CPI. We still project US headline and core CPI inflation to ease towards 2% in 2027 as base effects normalize, but the risk is for inflation to remain above target for longer than previously anticipated."

"Unsurprisingly, the risk to CPI in 2026 is still on the upside and the outlook is highly dependent on the ongoing geopolitical developments in the Middle East. If the ceasefire holds and oil prices retreat well below US$100/bbl, inflation should subside in 2H 2026."

"However, if this temporary ceasefire is broken and the conflict escalates on a sustained basis, then oil prices may be well above US$100, and headline inflation could easily head towards 5% by end-2H."

"Moreover, given the extent of jump in Apr’s PPI and reasonable gap between PPI and CPI, it might be indicative that the passthrough from producer prices unto consumer prices have yet to materialize fully, implying possibly higher upside inflation risks in months to come."

"Despite the moderation from Mar’s outsized monthly gain, the Apr CPI report suggests that inflation pressures are becoming more pervasive, with energy no longer the sole driver."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)