BlackRock Investment Institute is bracing for Wednesday’s May U.S. inflation report, expecting it to show the first clear signs of how tensions in the Middle East are pushing up prices that were already sticky. In its weekly market commentary, the firm said it is looking to the consumer price index for a better read on how the energy shock from the U.S.-Iran conflict is feeding into inflation. It noted that the full effect of the shock has not yet appeared and will depend on how events unfold over time.
The U.S. Bureau of Labor Statistics is set to release May CPI data at 8:30 a.m. ET on Wednesday. Economists polled by Reuters forecast a 4.2% year-over-year increase, which would be the sharpest rise since April 2023. That compares to a 3.8% rise in April. If the prediction holds, it would be another sign that inflation remains well above the Federal Reserve’s 2% target. This could reinforce the idea that the Fed’s next move might be an interest rate hike, not the cuts that many market participants were expecting earlier this year.
Impact on risk assets and crypto
Higher borrowing costs generally make investors less willing to put money into riskier assets like stocks and cryptocurrencies. So, if the CPI comes in hot, it could add more bearish pressure to the crypto market. Bitcoin, for example, already dropped sharply last week, falling nearly 14% to below $60,000. A stronger-than-expected inflation reading might push prices even lower, as traders adjust their expectations for monetary policy.
BlackRock also highlighted a major risk factor: the possibility that the Strait of Hormuz could remain closed for an extended period, perhaps into July. The Strait is a critical chokepoint for global oil shipments. If it stays shut, the energy shock would become a much bigger driver of inflation. The firm warned that U.S. oil inventories could fall to their lowest levels in four decades under such a scenario. That would likely push energy prices higher and make inflation even harder to contain.
“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,” BlackRock said.
The broader concern is that the Fed might have to keep rates high for longer, or even raise them again, which would hurt economic growth and asset prices. For now, all eyes are on Wednesday’s CPI report to see just how much the energy shock has already moved the needle on inflation.
