Economics week ahead

U.S. week ahead

CPI • Wednesday

The inflationary effects of the Iran conflict continue to ripple through consumer prices. We estimate the Consumer Price Index rose 0.52% in May, which would push the year-over-year rate up to a three-year high of 4.2%. Higher costs of necessities continue to pinch consumers. We estimate energy goods (primarily gasoline) rose 8% in May, while food prices advanced 0.3%.

Excluding food and energy, we estimate prices rose a more moderate 0.23%. Core good prices look set for a modest pickup in May thanks to a lift from used autos, as the CPI index has yet to reflect the pickup in wholesale auction prices since the start of the year. Inflation among other goods, however, is likely to have eased slightly as tariff-related price hikes ebb and the Iran conflict's second-round effects on costs for transportation, packaging, etc. are slow to filter into retail prices.

One area of the core in which the impact of the Iran conflict should be readily apparent though is airline fares. The surge in jet fuel costs since early March along with the bankruptcy of Spirit Airline's set the stage for another solid rise (we've penciled in an increase of 3%). But we do not expect to see a broad re-acceleration in price growth across remaining services. Primary shelter looks to set to revert to its 0.2-0.3% monthly pace following April's "catch up" reading that was a lingering quirk of the government not collecting data last October during the shutdown. Meantime, a rebound in medical care is likely to be mostly offset by weakness in motor vehicle insurance and personal services, keeping the six-month pace of core services ex-shelter and travel unchanged at 2.5% and in line with its pre-COVID pace.

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