US Inflation Rises Less Than Expected in May
Inflation pressures eased more than anticipated in May, according to the latest data released by the Bureau of Labor Statistics (BLS). The Consumer Price Index (CPI), a key measure of costs for goods and services across the U.S. economy, showed a modest increase, suggesting that potential price impacts from President Donald Trump’s recent tariffs had not yet significantly materialized.
Key Inflation Figures for May 2025
The CPI rose just 0.1% in May compared to April. This was below the 0.2% monthly increase expected by economists surveyed by Dow Jones. The annual inflation rate stood at 2.4%, aligning with forecasts.
Excluding volatile food and energy prices, the core CPI also came in softer than predicted. Core CPI increased by 0.1% month-over-month and 2.8% year-over-year, compared to forecasts of 0.3% and 2.9% respectively. Federal Reserve officials often focus on core inflation as a better indicator of long-term price trends, and some have voiced concerns about how tariffs might influence these figures in the future.
The overall annual inflation rate ticked up slightly from April’s 2.3%, while the core annual rate remained unchanged.
Components Driving Price Changes
Several factors contributed to the subdued May inflation reading:
Energy Prices: Continued weakness in energy costs helped offset price increases elsewhere. Energy prices collectively fell 1% for the month, with gasoline posting a significant 2.6% drop. Gasoline prices are now down 12% year-over-year.
Vehicles and Apparel: Despite expectations that tariffs might immediately impact imported goods, prices for new and used vehicles declined by 0.3% and 0.5% respectively. Apparel prices also dropped by 0.4%.
- Food and Shelter: Prices for food and shelter both increased by 0.3% in May. The BLS highlighted shelter costs as the “primary factor” contributing to the overall modest CPI rise. While shelter prices rose on the month, the annual increase of 3.9% is the lowest rate recorded since late 2021. Egg prices saw a monthly drop of 2.7% but remained significantly higher, up 41.5% from a year ago.
Impact on Wages and Market Reaction
With inflation showing modest movements, real average hourly earnings, which account for inflation, saw a positive uptick, increasing by 0.3% in May and standing 1.4% higher than a year ago.
Following the release of the report, stock market futures turned positive, while Treasury yields declined, reflecting investor optimism about potentially less aggressive monetary policy.
The Tariff Question and Future Outlook
A key point of discussion surrounding the May data is the impact of the recently implemented tariffs by the Trump administration, including 10% universal duties on many imports and reciprocal tariffs on certain countries.
While the White House maintains that foreign producers will absorb much of the tariff costs, potentially limiting consumer price increases, many economists suggest broader duties could lead to more pronounced price hikes later.
Experts note that the current lack of significant tariff impact might be due to companies using existing inventories or slowly adjusting prices amidst demand uncertainty. As inventories built up before the tariffs are drawn down, some price increases on goods could appear later in the summer. However, service prices are generally expected to remain stable, potentially limiting the overall inflationary effect and keeping any rise temporary.
As Seema Shah, chief global strategist at Principal Asset Management, commented, “Today’s below forecast inflation print is reassuring – but only to an extent. Tariff-driven price increases may not feed through to the CPI data for a few more months yet, so it is far too premature to assume that the price shock will not materialize.”
Alexandra Wilson-Elizondo, global CIO of multi-asset solutions at Goldman Sachs Asset Management, echoed this, stating the benign readings suggest “the tariffs aren’t having a large immediate impact because companies have been using existing inventories or slowly adjusting prices due to uncertain demand.”
Political Pressure on the Federal Reserve
The softer inflation data quickly became a point of political discussion. Echoing President Trump, Vice President JD Vance called on the Federal Reserve to cut interest rates, arguing that the lack of significant inflation pressure makes the Fed’s current stance “monetary malpractice.”
Market pricing currently suggests the Fed is unlikely to consider further interest rate adjustments until at least September as policymakers continue to evaluate the complex impact of tariffs on the inflation outlook. President Trump has consistently urged the central bank to lower rates amid easing inflation signals and signs of a slowing labor market.
Data Collection Nuances
It’s worth noting that evaluation of recent economic data, including inflation, has been complicated by operational changes at the BLS. Staffing shortages resulting from administration initiatives to reduce the federal workforce have led to expanded use of imputation (using models to fill in data) and reduced data collection in some areas. While the BLS states this has minimal overall impact, analysts suggest smaller sample sizes could potentially lead to greater volatility in reported figures.
