BlackRock is keeping a close eye on Wednesday’s May US inflation report for the first clear signal of how the US-Iran conflict is feeding into already sticky prices.
“We look to May’s US inflation numbers for a clearer reading of how the energy shock from the Middle East conflict is affecting already sticky inflation. The full breadth of the shock has yet to emerge and will depend on how it unfolds,” BlackRock Investment Institute said in its weekly market commentary.
The US consumer price index (CPI) for May is scheduled to be released on Wednesday at 8:30 a.m. ET. Economists polled by Reuters forecast CPI rising 4.2% year-on-year, the sharpest increase since April 2023 and up from 3.8% in April.
The expected acceleration will mark another reminder that inflation remains stubbornly above the Federal Reserve’s 2% target, reinforcing the prospect that the Fed’s next move could be a rate hike rather than cuts, as markets expected earlier this year.
Higher borrowing costs typically discourage investment in risky assets, including cryptocurrencies. In other words, the expected CPI increase may contribute to bearish pressure on the crypto market. Bitcoin has already taken a beating last week, falling almost 14% to below $60,000.
According to BlackRock, a significant risk factor is the possibility of a prolonged closure of the Strait of Hormuz, which extends into July. Such a disruption would push the energy shock into the forefront of inflationary dynamics, especially as US oil inventories could fall to their lowest levels in four decades.
“We believe a prolonged closure of the Strait of Hormuz in July could bring the impact of the shock more to the fore, especially as US oil inventories potentially hit four-decade lows,” the firm said.
