Data Preview & Forecast
MUFG forecasts May 2026 headline CPI at 0.47% MoM (4.2% YoY) and core CPI at 0.28% MoM (2.9% YoY), in line with the median estimate from Bloomberg contributors.
The base effect is expected to contribute 0.13% points to YoY growth in core CPI, down slightly from April.
What to watch out for: Fuel surcharges are expected to keep airline fares and shipping/logistics inflation elevated in May, with gasoline and jet fuel price growth higher than WTI oil. A normalization in MoM CPI shelter is expected to bring OER back down to ~0.25%.
Market Thoughts
Base-case view: A 0.3% MoM core inflation reading (consensus est.) could prompt a small initial rally in rates, if driven by transitory factors (e.g., fuel surcharges). But if inflation broadens out, it will impact a market already on edge triggering a minor sell-off.
Upside risk: After consecutive better than expected NFPs and renewed Iran/US tensions, rates would see a decent 2yr sell-off if core CPI is above 0.3% MoM, but buyers likely cap the move at 4.2%.
Downside risk: A softer reading would likely be dismissed, given oil concerns, with rates guidance coming from other market moves.
Views Update: Conflict escalations delay the opening of the Strait of Hormuz (keeping oil prices and inflation fears elevated) while global oil inventories and the SPR run low. May’s CPI and the June FOMC meeting will be key considerations before revising our rates view.
Please see the link for the full write-up with charts and scenarios…