TD Securities economists Oscar Munoz and Eli Nir expect May US CPI to show moderating but still-elevated core inflation, with core CPI seen rising 0.23% m/m and 2.8% y/y, while headline CPI is expected to climb to 4.2% y/y. They flag shelter normalization, firmer airfares and oil-related upside risks as key drivers.

Core CPI seen moderating but sticky

“We look for core inflation to advance to 0.23% m/m in May, largely owing to shelter normalization following its temporary boost to prices in the last report. The ongoing oil shock should not only manifest in further strength in energy prices, but also in core services through firmer airfares. The core goods ex-vehicles segment should provide the bulk of the increase in goods prices, offset by another decline in used vehicles.”

“We project the core CPI rose to 2.8% on a y/y basis, with headline inflation moving north by another 0.4pp to 4.2%—a three-year-high. We see the risks to our forecasts skewed to the upside in the event pass-through from jet fuel prices to airfares is larger than what we are assuming.”

“We look for goods prices to advance at a subdued 0.13% m/m in May, remaining in line with its three-month average. As has been the case in recent reports, the core goods ex-vehicles segment should provide the bulk of the increase in prices, with gains in household goods, apparel and other goods acting as key drivers. Another decline in used vehicle prices likely acted as an offset.”

“The ongoing oil-price shock and lingering tariff passthrough should result in the core segment nearing its peak for the year at 3.0% y/y in June—though the ongoing Iran conflict provides upside risks to our forecast. While we project m/m normalization in the final quarter of the year, core inflation is unlikely to achieve meaningful progress on a y/y basis in 2026.”

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