BlackRock is closely watching Wednesday’s U.S. inflation report in May for the first clear signal of how the U.S.-Iran conflict is fueling already sticky prices.
“We look to May’s US inflation figures for a clearer picture of the impact of the energy shock from the Middle East conflict on already fragile inflation. The magnitude of the shock has not yet been demonstrated and will depend on how it develops,” the BlackRock Investment Institute said in its weekly market commentary.
The US Consumer Price Index (CPI) for May is scheduled to be released at 8:30 a.m. ET on Wednesday. Economists polled by Reuters forecast the CPI jumped 4.2% year-on-year, the biggest increase since April 2023 and up from 3.8% in April.
The expected acceleration would serve as another reminder that inflation remains stubbornly above the Federal Reserve’s 2% target, reinforcing the prospect that the Fed’s next move could be an interest rate hike rather than a cut, as markets expected earlier this year.
Higher borrowing costs generally discourage investing in risky assets, including cryptocurrencies. In other words, the expected CPI increase could add to the bearish pressure on the crypto market. Bitcoin has already taken a hit last week, falling almost 14% to below $60,000.
A major risk factor, according to BlackRock, is the possibility of a prolonged closure of the Strait of Hormuz until July. Such a disruption would put the energy shock at the forefront of inflation dynamics, especially as U.S. oil inventories could fall to their lowest levels in four decades.
“We believe a prolonged closure of the Strait of Hormuz through July could further highlight the impact of the shock, especially as U.S. oil inventories could reach a four-decade low,” the company said.
