U.S. May CPI Preview: Inflation rises for the first time in 2025, but U.S. stocks enter risk-taking mode!

TradingKey - On Wednesday, June 11, the U.S. Bureau of Labor Statistics will release the Consumer Price Index (CPI) report for May 2025, and investors will observe how Trump's tariffs have shifted costs to consumers from this report. Before the CPI report is released, the market has increased bets on a rate cut by the Federal Reserve within the year, and in the context of smooth progress in U.S.-China negotiations, market preferences are leaning towards risk-taking. Economists expect the U.S. May CPI to grow by 2.4% year-on-year, a slight rebound from the previous value of 2.3%; month-on-month growth is expected to be 0.2%, unchanged from last month. Excluding the more volatile food and energy prices, the core CPI for May is expected to grow by 2.9% year-on-year, rebounding from 2.8% in April, marking the first rebound in core inflation for 2025, reversing the trend of cooling inflation so far this year. The core CPI is expected to grow by 0.3% month-on-month, up from the previous value of 0.2%. 【U.S. Core CPI Year-on-Year, Source: Trading Economics】 The May CPI report will further reveal how much impact U.S. tariffs have on the upward risk of inflation levels. In the April CPI report, consumer price levels did not rebound due to most companies not implementing price increases and accumulating a large inventory through early concentrated procurement. However, as companies like Walmart (WMT) announce price increases to cover tariff costs, the impact of tariffs may be more evident in the May report. Bank of America economists stated that the impact of tariff policies on economic data in May will be greater than in April, with the most significant price increase driven by tariffs in April being an 8.8% month-on-month increase in audio equipment prices. Additionally, the price fluctuations of high-tariff goods such as clothing, new cars, and household appliances are worth noting. Wells Fargo economists indicated that the May CPI report will be an important indicator to test the speed and extent of tariff increases being passed on to consumers. With the continued high tariff regime, previous practices that protected consumers from cost impacts may become difficult. On the other hand, inflation in the service sector may somewhat offset the impact of goods inflation. Some viewpoints suggest that the decline in foreign tourists to the U.S. in recent months and government officials cutting travel have led to continued weakness in airfares and hotel prices, even entering deflation, which may drag down the overall inflation trend in the U.S. economy How will the US stock market perform? Before the release of the CPI data, traders lowered their expectations for Fed easing this year due to the strong non-farm payroll data, and are currently maintaining a relatively cautious stance. As of now, the market bets that the Federal Reserve will only cut interest rates once in 2025. The cooling of the China-US trade war has also diminished the necessity for aggressive rate cuts by the Federal Reserve. Although the prospects for rate cuts are suppressed, any positive news regarding the trade situation could drive US stocks higher. According to a survey by 22V Research, 42% of investors believe the market's reaction to the May CPI is "risky," 33% are mixed, and 25% are hedging. Notably, this is the first time since August 2024 that the market reaction has leaned towards risk-taking. Recently, Wall Street institutions such as JP Morgan, Morgan Stanley, Citigroup, and Goldman Sachs have changed their previously pessimistic forecasts, believing that the resilience of the US economy and the reduction of tariff risks will support a rise in US stocks