BlackRock is closely monitoring Wednesday’s May US inflation report for the first clear sign of how the US-Iran conflict is fueling already sticky prices.
“We look forward to May’s US inflation numbers for a clearer read on how the energy shock from the Middle East conflict is affecting already stiff inflation. The full extent of the shock has not yet been shown and will depend on how it evolves,” BlackRock Investment Institute said in its weekly market commentary.
The release of the US Consumer Price Index (CPI) for May is scheduled for Wednesday at 08:30 am ET. Economists polled by Reuters forecast the CPI rose 4.2% year-on-year, the sharpest rise since April 2023 and up from 3.8% in April.
The expected acceleration would mark another reminder that inflation remains stubbornly above the Federal Reserve’s 2% target, reinforcing the view that the Fed’s next move could be an interest rate hike rather than cuts, as markets expected earlier this year.
Higher borrowing costs generally discourage investment in risky assets, including cryptocurrencies. In other words, the expected rise in the CPI could increase the bearish pressure on the cryptocurrency market. Bitcoin already took a beating last week, falling almost 14% to below $60,000.
A major risk factor, according to BlackRock, is the possibility of an extended closure of the Strait of Hormuz that extends into July. Such a disruption would put the energy shock at the forefront of inflationary dynamics, especially as US oil inventories could fall to their lowest levels in four decades.
“We believe an extended closure of the Strait of Hormuz through July could bring the impact of the shock to the foreground more prominently, especially as U.S. oil inventories could hit four-decade lows,” the firm said.
