Inflation in May showed a modest uptick, increasing 2.4% year-over-year, slightly above the 2.3% figure in April, though still below expectations. This increase was tempered by another decline in gasoline prices, which helped offset early signs of President Donald Trump’s sweeping tariffs. On a monthly basis, consumer prices rose only 0.1%, less than forecasted. Rent inflation, which had been a key contributor to rising prices in recent years, dropped to a three-year low, further cushioning overall inflation figures.
Core Inflation Stays Low As Fed Weighs Rate Cuts Amid Tariff Uncertainty
Core inflation, which excludes food and energy prices and is a key metric for the Federal Reserve, rose only 0.1% in May and held steady at a 2.8% annual rate — the lowest in four years. While some effects of tariffs were visible, such as a 4.3% rise in appliance prices and a 1.3% increase in toy costs, other categories like apparel, furniture, and used cars saw declines. Economists anticipate more noticeable price increases from tariffs as the summer progresses, but so far, the pass-through has been limited.
Inflation Remains Mild in May as Gas and Rent Decline, But Tariff Pressures BuildDespite tame inflation figures, the Federal Reserve remains cautious about adjusting interest rates due to ongoing uncertainty around trade policies. Typically, low inflation might prompt a rate cut to stimulate the economy, but conflicting effects from tariffs, which can both raise inflation and hinder growth, complicate the Fed’s decision-making. Market expectations suggest rate cuts might still occur in September and December, as signs of economic weakening and labor market strains become more apparent.
Gas, Housing, And Food Prices Ease As Tariffs Loom Over Inflation Outlook
Gasoline prices fell for the fourth consecutive month, down 2.6% in May and 12% over the past year, largely due to increased oil supply and global economic slowdown fears from the trade conflict. Housing costs, which have been the largest contributor to inflation, showed signs of moderation.
Rent rose just 0.2% in May, pushing annual growth to 3.8%, its lowest since early 2022. Other service categories, including airline fares, hotel rates, and medical care, either declined or rose modestly, contributing to the restrained inflation environment.
While some economists expected an immediate inflationary impact from new tariffs, others noted that businesses have mitigated the effects by stockpiling goods or delaying price hikes. Trump temporarily suspended some tariffs, but U.S. duties still sharply increased overall, from under 3% to as high as 30% on Chinese goods and 10% on others.
Grocery prices rose slightly in May, with notable drops in eggs, bread, and chicken, though some items like cereal and beef increased. By year’s end, analysts project tariffs could push overall inflation to 3.5% and core inflation to 3.8%, depending on trade negotiations and market responses.
