The highly-anticipated Consumer Price Index (CPI) inflation data for May will be published by the US Bureau of Labor Statistics (BLS) on June 13 at 12:30 GMT. 

The United States Dollar (USD) has been trading quite choppy in the lead-up to the crucial US inflation report, following a mixed May Nonfarm Payrolls report. The recent series of discouraging US economic data have underpinned expectations of a US Federal Reserve (Fed) interest rate hike pause this Wednesday when the Fed concludes its two-day policy meeting.

The US CPI inflation data could influence the Fed’s decision, throwing fresh light on whether the world’s most powerful central bank will meet the market expectations and bring a halt to its tightening cycle. Therefore, this top-tier US economic data release is likely to have a significant bearing on USD valuations.

What to expect in the next CPI data report?

The US Consumer Price Index data, on a yearly basis, is expected by market consensus to rise 4.2% in May, a deceleration when compared with the 4.9% increase recorded in April. On the other hand, the Core CPI figure, which excludes volatile food and energy prices, is expected to advance 5.6%, at a slightly faster pace than April’s 5.5% growth.

The monthly Consumer Price Index is forecast to rise 0.3% in May, having inched 0.4% higher in the fourth month of the year. However, the Core CPI is expected to increase 0.4%, the same pace as the previous month.  

Speaking at the Fed’s annual Thomas Laubach Research Conference last month, Fed Chairman Jerome Powell said it would take “some time” for inflation to moderate and that the central bank would continue to look at data as it considers whether to raise rates next month.

Based on recent Fed communication and sluggish economic performance, the central bank is widely expected to skip a rate hike at this meeting and potentially resort to tightening more later. The recently released US ISM Services PMI and the weekly Initial Jobless Claims data disappointed and raised economic concerns. Expectations for further cooling of US inflationary pressures further cemented a Fed pause this week, with markets pricing roughly 80% probability for the same.

Last week, however, markets weighed the prospects of a coordinated effort by the major central banks to tame inflation especially after the Bank of Canada (BoC) followed the Reserve Bank of Australia (RBA) to announce an unexpected rate lift-off. The BoC unexpectedly raised the policy rate by 25 basis points (bps) to 4.75% at its June meeting after being on pause since March. The Fed pause bets dropped to around 60% following the BoC’s hawkish surprise.