In May, inflation rose less than analysts anticipated, amid a period where the impact of higher tariffs was becoming more widespread. The latest data from the Bureau of Labor Statistics reveals that consumer prices increased by 0.1% last month, with the annual inflation rate climbing to 2.4%, up from a four-year low of 2.3% recorded in April.
This unexpected inflation reading brings some relief to Americans who have been grappling with the rising cost of living and concerns over whether tariffs would exacerbate these financial pressures. Although the report did not prominently feature the effects of tariffs, it did show signs of potential price increases and a decrease in consumer demand.
The overall inflation readings for May were better than expected, as economists had predicted that declining gas prices would help keep the monthly inflation rate stable, while year-over-year comparisons would become less favorable. Forecasts suggested a 0.2% increase in monthly inflation and a 2.5% rise in the Consumer Price Index (CPI) on an annual basis, according to FactSet.
Following the release of the data, stock futures initially surged, but by the opening bell, the Dow Jones Industrial Average dipped around 40 points, or 0.1%. Meanwhile, the S&P 500 saw a slight increase of 0.08%, and the Nasdaq Composite rose by 0.25%.
Currently, a crucial indicator of underlying inflation, known as the core CPI, which excludes the more volatile categories of food and energy, has remained stable. It registered a modest increase of just 0.1% from April, maintaining its rate at 2.8%. Many economists have been closely monitoring this figure, anticipating that price pressures may intensify as businesses adjust to the sharp increase in the US tariff rate and the unpredictable nature of trade policy under President Donald Trump.
However, experts caution that it may take time before the full impact of higher tariffs is reflected in consumer prices and, ultimately, in inflation rates. Seema Shah, the chief global strategist at Principal Asset Management, commented that while the inflation print falling below forecasts is reassuring, it is "far too premature" to conclude that the anticipated price shocks will not materialize. She noted that it could be several months before the tariff effects are evident in the data, suggesting that the impacts may not show up until late summer.
Several factors contribute to the lag in tariff impacts on consumer prices. Economic data often has a delayed effect; there have been significant changes in tariff policy, with some aggressive duties being paused or reduced. Furthermore, businesses have been proactive in managing their inventories by front-loading purchases prior to tariff implementations, which has allowed them to offer discounts to maintain customer loyalty. Additionally, some costs associated with the initial rounds of new tariffs may have been absorbed by retailers and manufacturers, delaying the eventual price increases passed on to consumers.
This story is still developing, and updates will be provided as more data becomes available.
