--- title: "Tonight's CPI \"Mixed Bag\": Headline Inflation May Break 4% to Hit Three-Year High, Core Inflation Likely Significantly Below Expectations!" type: "News" locale: "en" url: "https://longbridge.com/en/news/289260775.md" description: "The US will release May CPI data tonight. Goldman Sachs, UBS, and others predict headline inflation year-over-year will rise to approximately 4.2%-4.3%, potentially marking the highest level in nearly three years, driven primarily by soaring energy prices. However, core CPI month-over-month is expected to be only 0.17%-0.22%, significantly lower than the market consensus of 0.3%, with components such as housing and auto insurance trending toward moderation. This combination of high headline and low core figures will directly influence Fed Chair Walsh's decision on whether to raise or cut interest rates next week" datetime: "2026-06-10T04:42:21.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/289260775.md) - [en](https://longbridge.com/en/news/289260775.md) - [zh-HK](https://longbridge.com/zh-HK/news/289260775.md) --- # Tonight's CPI "Mixed Bag": Headline Inflation May Break 4% to Hit Three-Year High, Core Inflation Likely Significantly Below Expectations! At 8:30 PM Beijing time tonight, the US Bureau of Labor Statistics will release the May CPI data. This is the most closely watched inflation data ahead of Fed Chair Walsh's policy rate meeting next week. According to Zhuifeng Trading Desk, four major Wall Street institutions—Goldman Sachs, UBS, Deutsche Bank, and Morgan Stanley—intensively released preview reports on the eve of the data release. While their specific forecasts vary, the direction is similar: **headline inflation may be high, but core inflation may not be as hot.** Energy prices are pushing up overall CPI, while factors such as rent and car insurance are weighing down core CPI. ## **Headline CPI May Rise Above 4% to Hit Three-Year High, Core CPI Likely Below Consensus** From the forecasts, the four institutions' predictions for May **headline CPI year-over-year are concentrated in the 4.17%-4.3% range, all higher than April's 3.81%**. However, core CPI month-over-month forecasts are generally lower than market consensus. The trends for headline and core inflation show a clear divergence. **The "worrying" part is headline inflation.** Goldman Sachs, UBS, Deutsche Bank, and Morgan Stanley all provide year-over-year forecasts above 4%. Deutsche Bank's estimate of 4.27% and Morgan Stanley's estimate of 4.3% are 46-49 basis points higher than April and would be the highest since April 2023. **The "positive" part is core inflation.** Excluding food and energy, **core CPI month-over-month may be only 0.17%-0.22%, significantly lower than the mainstream market expectation of 0.27%-0.30%.** ## Headline Inflation May Break 4%: Energy is the "Main Culprit" Energy will be the core driver of the potential jump in inflation this time. Following the outbreak of war in Iran, US retail gasoline prices surged sharply, driving energy commodity prices up by an estimated 6%-7% month-over-month in May, with the entire energy category rising nearly 4% month-over-month. This effect directly pushes headline CPI year-over-year from 3.81% in April to 4.17%-4.3% in May. Deutsche Bank's calculations show that **energy inflation year-over-year may approach 24%; in February, this figure was only 0.5%.** Rising airfare is one of the most direct transmission chains. Rising fuel costs directly increase airline operating costs, with May airfare prices expected to rise 1.3%-2% month-over-month. The good news is that gasoline prices peaked on May 20 and have since fallen by about 40 cents per gallon. UBS expects this to lead to a month-over-month decline in headline CPI of about 0.13% in June, with the year-over-year rate falling back to around 3.81%. In other words, May is likely the peak for this round of headline inflation. ## Why Core Inflation Is Below Expectations: The Key Lies in Housing Cooling Again Core CPI excludes food and energy. Precisely because these two hottest components are excluded, the May core data will appear much more moderate. **Housing has a high weight in the US CPI, at approximately 35%.** Both Goldman Sachs and UBS predict that Owners' Equivalent Rent (OER) and primary residence rent will rise about 0.22%-0.23% month-over-month in May, continuing the slowing trend. In April, these two components rose 0.53% and 0.55% month-over-month, respectively. Deutsche Bank also lists "housing inflation trends remaining moderate" as one of the reasons for softer core inflation. Since OER itself carries significant weight, **even a drop from around 0.5% to just above 0.2% will significantly press down the core CPI reading.** **Car insurance is another cooling point.** Goldman Sachs expects car insurance prices to fall 0.1% month-over-month in May. Its online data model shows that premium changes are forming a downward signal for car insurance CPI. Deutsche Bank also notes that car insurance is expected to remain weak again. Used cars also show no significant upward pressure. Goldman Sachs expects used car prices to remain flat and new cars to rise 0.1%; UBS expects used cars to fall 0.26% and new cars to fall 0.10%. This means that several items that have frequently disrupted US core inflation in recent years—housing, car insurance, and used cars—are not giving strong inflation signals this time. In other words, **the low core CPI in May is not just due to a sudden cooling in a single component.** **** ## Core Inflation Is Not Cooling Across the Board: Airfare, IT Goods, and Some Services Remain Under Pressure Core CPI being below consensus does not mean all core items are cooling. **Airfare is an upward item.** Goldman Sachs expects airfare prices to rise 2% in May. UBS expects a 1.34% increase. The reason is that aviation fuel prices remained high for most of May and may pass through to ticket prices. Judgments on hotel prices vary significantly. Goldman Sachs expects hotels to rise 0.2%; UBS lowered its accommodation forecast based on Smith Travel Research data, expecting away-from-home lodging prices to fall 0.77%. However, UBS also warns that CPI statistics reflect booking prices, while STR data is closer to stay prices, and the time lag may bring upward risks, especially potentially reflecting World Cup-related demand in advance. **Goods also show stickiness.** UBS expects core goods prices to rise 0.08% month-over-month, between March's 0.11% and April's 0.03%. Its judgment is that the impact of tariffs on 12-month core goods inflation may have slightly passed its peak, but residual transmission will keep monthly core goods prices growing slightly positively for the rest of the year. **Deutsche Bank also mentioned that import prices show IT goods prices still have strong momentum, backed by global memory chip prices remaining at high levels.** Meanwhile, apparel PPI shows that apparel inflation trends remain strong, but weak import prices suggest CPI momentum may slow compared to previous months. Service items are more complex. UBS raised its forecast for non-rent core service prices from 0.17% to 0.21%, because the S&P Global US Consumer Services Output Price Diffusion Index shows that the proportion of consumer service firms raising prices in May increased, reaching the second-highest level since 2009, excluding the anomalous pandemic period. ## What Really Matters Tonight Is Not Just Headline Inflation Above 4% The surface numbers for May CPI may be high, but breaking them down is more critical. If headline CPI is high, mainly due to gasoline and energy, the market may combine this with the decline in June gasoline prices to judge sustainability. If core CPI is significantly below expectations, the market will continue to look at where the lower inflation comes from: is it a slowing housing trend, or a one-time seasonal drag? If airfare, IT goods, and non-rent services remain strong, the significance of the core cooling will be discounted. Therefore, this CPI report may simultaneously give the market two messages: On one hand, headline inflation breaks 4% again, potentially hitting a new high since April 2023. On the other hand, core inflation may be only around 0.2%, significantly below market consensus. This is the hardest part of trading tonight's CPI: headline inflation looks hot, but core inflation may not be as hot; oil prices push headline up, while housing and car insurance pull core down. ## Inflation Swap Pricing: Market Bets on a USD Upside Surprise The interest rate swap market currently prices May headline CPI at 4.27%-4.28%, slightly higher than the Bloomberg survey median of 4.2%. Morgan Stanley strategist Molly Nickolin's analysis framework shows that inflation swap pricing accurately predicted the direction of year-over-year inflation in 9 out of the last 12 CPI releases. Current pricing implies an upside deviation of about 0.48 standard deviations relative to economists' expectations. Based on historical backtesting, **an upside surprise of 0.48 standard deviations usually corresponds to a roughly 0.14% rise in the DXY US Dollar Index within one hour of the release.** Among all G10 currencies, the Swedish Krona (SEK) performed the weakest on CPI release days that were "bullish for the USD," with the largest average decline. ## Looking Ahead: Oil Prices Are the Biggest Variable in the Inflation Path The trend of core CPI in the coming months depends on how long oil prices can be sustained. The current baseline forecast is that month-over-month core CPI remains around 0.2%. However, if the Middle East situation persists and oil prices do not fall as expected, upside risks will be more prominent—high oil prices not only directly push up energy prices but also continue to permeate into core inflation through intermediate links such as airfare and transportation. Deutsche Bank's long-term forecast is more pessimistic: even if oil prices begin to fall in June, overall energy inflation year-over-year will remain above 10% until early 2027 before turning negative. 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