Grocery clerk James Delarosa takes inventory of the salad dressing and condiments aisle at a Publix Super Markets Inc. grocery store in Knoxville, Tennessee.

Consumer price inflation was expected to have increased at a pace of 1.9% in May, slower than in April and below the Federal Reserve's 2% target.

There is much focus on the 8:30 a.m. ET inflation report Wednesday because the Fed has indicated it could move to cut interest rates at some point this year, if warranted, and a low inflation reading could spark speculation it would be sooner rather than later. A higher reading of inflation would have the opposite effect and dim expectations for a rate cut, which market players are betting could happen in July and then again later in the year.

Economists expect the consumer price index to rise by 0.1%, according to Dow Jones. That compares with a gain of 0.3% in April. On a year-over-year basis, that would be a rise of 1.9%, versus 2% in April.

Core CPI, which excludes food and energy, is expected to rise by 0.2%, or an annual rate of 2.1%, in line with April's core reading. The Fed's preferred measure of inflation is the personal consumption expenditures index, which was 1.5% in April.

"CPI Is a pretty major deal. One of the things that is keeping the Fed on hold is the assumption that underlying inflation is closer to 2 percent," said Jon Hill, BMO rate strategist. "There were some transitory impacts on PCE which made it drift lower. If you saw a major miss in ... CPI, you'd hear louder calls for cuts next week."

The Fed meets next week, then again at the end of July. Hill said in the fed funds futures market, expectations are just 12% for a quarter-point rate cut in June, but the market has priced in an 82 percent chance of a quarter-point cut in July.

"If it comes in in line, it reduces the chance of a June cut but still keeps a July cut on the table," said Hill.

Art Hogan, chief market strategist at National Alliance, said the market is more focused on the number than normal.

If the number is soft, there could be a big stock market reaction.

"I think the market is in the counterintuitive world of 'bad news is good news.' It's a perverse place to be," said Hogan. "Like or not, that's where we are. You saw the reaction with the last jobs number. The jobs number missed by 100,000 and the market rallied."