When does May’s CPI report come out? What can we expect? This is what the experts say

On Wednesday, the Bureau of Labor Statistics (BLS) will release the Consumer Price Index report for May. As economic uncertainty continues to cloud forecasts, the report will serve as an essential data point for investors and officials at the Federal Reserve.

On Wall Street, the market is looking quite bullish, rising steadily over the last six months as the developments in artificial intelligence boosted the value of tech stocks that had fallen in mid-to-late 2022 as the Federal Reserve hiked interest rates. Nevertheless, the stock market’s strength does not necessarily reflect the health of the US economy.

At the household level, the financial situation remains much more ambiguous. In May, the unemployment rate increased by 0.3 percent, reaching 3.7 percent. Despite the historically low unemployment rate, one should not overlook the fact that 6.1 million workers are without a job.

Additionally, although disposable income increased by 0.4 percent in April, personal savings remained low (4.1 percent) compared to pre-pandemic levels. According to the Federal Reserve, last year, around fifty-one percent of households reduced their savings rate as inflation cut into their purchasing power, and over a third reported that if confronted hypothetical $400 emergency expense, they would not be able to cover it.

So, while investors are increasingly optimistic about the economy’s outlook, the financial future of many households is at risk —particularly if unemployment continues to increase.

Uncertainty clouds economic forecasts

While over the last two years, inflation has been driven by a compounding set of factors, including corporate greed, supply chain issues, and the global energy crisis, many goods and services are seeing price growth slow. At the annual International Conference on Policy Challenges for the Financial Sector, Federal Reserve Governor Philip N. Jefferson noted that “inflation has come down substantially since last summer.” Still, he added that the central bank remains concerned after “progress has been decelerating recently, particularly in the core services sector.”

Governor Jefferson also spoke to how financial institutions will likely tighten credit standards in light of the recent bank failures, but that the effect “is not yet clear,” creating complications for those involved in economic forecasting. This makes estimating where the CPI landed in May challenging because firms and households are continuously adjusting to market conditions that are difficult to predict.

Housing continues to drive inflation... but are conditions changing?

Unlike the market for food and energy commodities, housing market conditions continue to push up prices. Since housing occupies a significant portion of a household budget, the sector is now viewed as one of the main drivers of inflation.

Rents rose 2.5 percent between January and April, 0.4 percent more than they did over the same period in 2022. Additionally, prices of houses on the market are again rising, with the Fed attributing the trend to low supply in many areas of the country. Some potential sellers may be unwilling to put their house on the market because, with interest rates where they are, they would likely have to take on a much more expensive mortgage.

If housing prices continue along the upward trend depicted in the graphic above, May’s CPI report will likely show continued inflationary pressure. Economist David Payne, writing for Kipling, believes the cost of shelter fell in May based on trends seen in the sector earlier in the spring. “Shelter prices, the biggest single component in the index, slowed their rate of increase in April to 0.4%, from 0.8% in March, and are expected to slow further over the coming months,” writes Payne.

Morningstar, the financial outlet, also reports that they expect housing prices to fall by the end of the year, but it may be a few more months before any significant decreases in home prices are seen. The team expects that “the supply of housing will continue to expand at a brisk pace [...] given the huge stockpile of uncompleted housing.” In May, there was a slight increase in the number of houses available for sale. However, this minor change is not expected to cause a significant decrease in prices.

To see a tangible drop in prices and curb the steady rise in housing costs, a more substantial shift would be necessary. By the end of the year, Morningstar projects that home prices will have fallen by 2.5 percent.