May’s Consumer Price Index (CPI) report showed inflation pressures eased on a monthly basis despite investor concerns that President Trump’s tariffs would accelerate the pace of price increases.
The latest data from the Bureau of Labor Statistics showed that the Consumer Price Index (CPI) increased 0.1% month over month, below April’s 0.2% rise and lower than economists’ estimates of a 0.2% monthly gain in prices.
On an annual basis, CPI rose 2.4% in May, a slight uptick from April’s 2.3% gain, which marked the lowest yearly increase since February 2021.
On a “core” basis, which excludes volatile food and energy costs, CPI rose 2.8% over the past year in May, matching April. Monthly core prices increased 0.1%, a touch below April’s 0.2% gain. Heading into the report, economists had expected core CPI to rise 2.9% year over year and 0.3% month over month.
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Declines in car and apparel prices — categories expected to show some of the earliest impacts from tariffs — helped drive a cooler-than-expected core CPI reading last month.
“We’re not really seeing much of the pass-through, if some at all, from the tariffs,” RSM chief economist Joe Brusuelas told Yahoo Finance, noting the 0.3% decline in prices for new vehicles and the 0.5% drop in used cars and trucks.
“That really did provide the much softer print than I expected or many analysts. … But don’t get too comfortable. When [companies] hike prices by 10% to 15%, it gets passed through eventually.”
The report reflects the time period about a month after Trump’s “Liberation Day” tariff announcements shook markets and businesses. Since then, many of those “reciprocal” tariffs have been paused, but the 10% baseline duties for most countries remain in place.
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Mexico and Canada continue to face fentanyl-related tariffs, and industry-specific tariffs on steel, aluminum, and autos remain unchanged. Tariffs on China are still significant even as a truce temporarily pauses big hikes, with the effective tariff rate on Chinese goods hovering around 30%.
Early Wednesday, the US and China agreed to a framework and implementation plan aimed at easing tariff and trade tensions. President Trump signaled his approval, saying the deal was “done,” pending final sign-off from him and Chinese President Xi Jinping.
May’s CPI report reflects a time period in which many of Trump’s tariffs were in effect. (Reuters/Evelyn Hockstein) · REUTERS / Reuters
Still, economists there say the risk of higher prices later this year remains, a view shared by many on Wall Street.
“I think [this report] can very well be an accurate picture of where we are as of last month,” said Claudia Sahm, former Federal Reserve Board economist and current New Century Advisors chief economist. “It’s not necessarily really telling us where we’re headed by the end of this year.”
“That’s a big question,” she said. “It’s really too soon to be saying we’re clear path back to 2% inflation.”
Markets still expect the Fed to hold interest rates steady at its policy meeting next week.
Shelter and food still sticky, energy drops
Core inflation has remained stubbornly elevated due to sticky costs for shelter and services like insurance and medical care. The shelter index rose 3.9% over the past year and 0.3% over the prior month in May. It was the primary factor in the all-items monthly increase, according to the BLS.
The index for rent and owners’ equivalent rent (OER) rose 0.2% and 0.3%, respectively, over the prior month. Owners’ equivalent rent is the hypothetical rent a homeowner would pay for the same property.
Still, there were signs of easing within shelter. Lodging away from home, for instance, fell 0.1% in May.
Outside of shelter, the downside surprise in core inflation was also aided by other categories, including a drop in airline fares, used cars and trucks, new vehicles, and apparel.
Meanwhile, the energy index dropped 1% month over month after rising 0.7% in April. On a yearly basis, the energy index was down 3.5%, aided by falling gas prices, which dropped 12% year over year in May.
Notably, food prices reversed last month’s easing, with the index rising 0.3% last month after a 0.1% decline in April. Egg prices dropped 2.7% from April to May but still remain near historic highs. On a yearly basis, egg prices have climbed around 41.5%.
Other indexes with notable increases over the past year include medical care (+2.5%), motor vehicle insurance (+7.0%), household furnishings and operations (+2.7%), and recreation (+1.8%).
Source: May CPI: Inflation pressures ease on a monthly basis as tariff uncertainty lingers