The Consumer Price Index (CPI) data for May is scheduled for release by the Bureau of Labor Statistics on Wednesday at 8:30 a.m. ET, with Wall Street anticipating an annual inflation rate of 4.2% based on a 0.5% increase in prices for the month. This figure would mark a significant rise, reaching the highest levels since April 2023 and surpassing 4% for the first time in over a year. The increase is largely influenced by rising energy costs linked to geopolitical tensions, particularly the Iran war, which has pushed oil prices higher.

Concerns are mounting that inflation is becoming more widespread, extending beyond energy prices into broader economic sectors. Higher oil prices are feeding through to costs in transportation and goods such as meat, intensifying pressures on consumer prices. Core inflation, which excludes volatile food and energy prices, is also expected to climb to 2.9% annually, indicating that price increases are becoming more persistent and entrenched in the economy.

Liz Ann Sonders, chief investment strategist at Charles Schwab, emphasized that inflation is driven not only by energy but also by factors like money supply growth and advancements in AI technology. She warned that inflation’s sticky nature could lead to further volatility in the equity markets if figures exceed expectations. Despite hopes that inflation might ease once conflicts in the Middle East deescalate, Sonders noted that lasting supply disruptions make a quick reversal in oil prices unlikely.

In April, annual headline inflation stood at 3.8%, with core inflation at 2.8%, setting the stage for the upcoming report. Investors and policymakers will be closely watching the data to gauge whether inflation is slowing or if it signals a more prolonged challenge for the U.S. economy amid ongoing geopolitical and supply chain issues. The May inflation figures are expected to be a crucial indicator of current economic conditions and future monetary policy decisions.