BlackRock Sees Inflation Upside Risk Ahead of May CPI Release

BlackRock is closely monitoring Wednesday’s CPI release as an early read on how escalating U.S.–Iran tensions could be adding to already elevated inflation in the U.S. economy.

The firm is also watching the May inflation data for clearer signs of how the ongoing geopolitical conflict is feeding into persistent price pressures.

In its weekly commentary, BlackRock Investment Institute stated, “We look to May U.S. inflation figures for a clearer read on how the Mideast conflict energy shock is impacting already sticky inflation. The full breadth of the shock has yet to show and will depend on how it evolves.”

The May Consumer Price Index is due on Wednesday at 08:30 am ET. Reuters-surveyed economists expect inflation to rise 4.2% year over year, the highest level since April 2023 and up from 3.8% in April.

If realized, this would reinforce the view that inflation remains well above the Federal Reserve’s 2% target, increasing the chance that policymakers may opt for further rate hikes instead of the rate cuts markets had been expecting earlier in the year.

Higher interest rates typically dampen appetite for risk assets, including cryptocurrencies. A stronger CPI reading could therefore add downward pressure on crypto markets, especially after Bitcoin already dropped nearly 14% last week, falling below $60,000.

BlackRock also flagged a key risk scenario involving a prolonged shutdown of the Strait of Hormuz extending into July. Such a disruption could intensify the energy-driven inflation shock, particularly if U.S. oil inventories fall toward their lowest levels in four decades.

The firm added, “We think a prolonged closure of the Strait of Hormuz into July could bring the impact of the shock to the fore more prominently, especially as U.S. oil inventories potentially hit four-decade lows.”