According to Bureau of Labor Statistics data, the headline consumer price index rose by 4.2% year over year in May, consistent with market expectations. This is up from 3.8% in April, and the highest since mid-2023. The energy price index increased by 23.5% year over year in May. Core CPI, excluding volatile food and energy prices, came in at 2.9% year over year, also aligned with expectations, but a small step up from 2.8% in April.
The ABA Office of the Chief Economist believes that May’s continued increase in consumer price inflation reflects the sustained pressures from the Iran conflict. Higher inflation will continue to weigh on consumer and business sentiment, erode purchasing power and dampen real economic growth. This could be a headwind for loan demand, particularly for interest rate sensitive products such as mortgages and commercial real estate. Moreover, as consumers face budgetary pressures from higher energy prices, consumer credit performance could deteriorate.
