Intelligent Investment

Economic Watch: Inflation Hits 8.6% in May, Keeping Fed Rate Increases on Track

June 10, 2022 3 Minute Read

Executive Summary

  • The Consumer Price Index (CPI) rose by 8.6% year-over-year in May—the highest jump in more than 40 years. Core inflation, excluding food and energy prices, increased 6%. Both exceeded consensus expectations.
  • CBRE expects inflation will remain elevated but begin to subside, with the CPI ending the year up by 6.6%. We expect annual inflation will recede to 2.4% by year-end 2023, close to the Fed’s 2% target.
  • CBRE expects the Federal Reserve to raise its benchmark interest rate by 50 basis points (bps) next week and again in July. Today’s news also makes another 50-bp hike in September more likely.
  • We expect that tightening financial conditions will slow the economy over the next 12 months but that commercial real estate fundamentals will remain well supported.

February CPI

Headline inflation increased by 8.6% annually in May (1.0% month-over-month)—the biggest increase since December 1981. Price increases in May were broad-based, but especially high for food and energy. Core inflation, which excludes food and energy, increased by 6.0% from a year ago (0.6% month-over-month).

Impacts on Commercial Real Estate


Consumers were particularly hard-hit by price increases in essential goods and services last month. Rent rose by 5.2% over the past 12 months, food increased 10.1% and “food at home” (groceries) jumped 11.9%. A housing supply shortage and strong labor market continue to underpin strong multifamily fundamentals. However, wage growth is not keeping up with inflation and savings are being drawn down, which will increasingly strain household budgets and limit renters’ ability to pay higher rents in coming quarters.


Gas prices rose by 48.7% in May from a year ago (7.8% month-over-month). Although consumer spending has so far remained resilient, decreased savings levels will begin to negatively affect consumption. Nevertheless, with a continued strong labor market, higher inventory levels and efforts to mitigate supply chain disruptions, we expect industrial & logistics fundamentals to remain strong in the near-term.


Prices for services (excluding energy services) rose by 5.2% in May from a year ago. Financial service prices were up by 5.0%, while legal services jumped 7.6%. A more uncertain economic outlook likely will slow the pace of office market recovery later this year.


Retail sales remain strong despite rising prices. “Food away from home” increased by 7.4% annually, while apparel rose by 5.0%. Consumers are shifting spending from goods to services. Travel is especially benefitting, as are restaurants and tourism-related retail. However, we expect less consumer spending later this year will weigh on retail real estate fundamentals.


Airfares rose by 37.8% annually in May, while hotel and motel prices were up 22.2%. We expect that the strong labor market, pent-up demand and healthy balance sheets will support the travel sector over the near term.

Looking Ahead

CBRE expects inflation will start to subside in the second half of 2022, with the CPI ending the year up by 6.6% and receding to 2.4% at year-end 2023. The key drivers of this are an easing labor market as companies cut back on hiring and better functioning supply chains. The strength of consumer and corporate balance sheets suggests that while the economy will slow, a recession will be avoided. Demand for commercial real estate likely will slow in step with lower economic growth. Price-sensitive segments of the hospitality, retail, multifamily and industrial sectors likely will be most impacted.