Price increases were milder than anticipated in May, according to the most prominent measure of inflation across the country, even as economists and monetary policy officials warn tariffs could undo the slow progress of bringing numbers down to historically normal levels after the post-pandemic price surge. “Meaningfully larger increases are likely in coming months” to inflation as tariffs take hold, said ... More the top U.S. economist at the nation’s largest bank. Getty Images The consumer price index rose 2.4% from May 2024 to last month and 0.1% from April to May, the Bureau of Labor Statistics reported Wednesday morning. That compares to consensus economist forecasts of 0.2% month-over-month inflation and 2.5% year-over-year inflation, according to FactSet data. Core consumer prices, which exclude the often volatile food and energy categories, rose 0.1% monthly and 2.8% annually, compared to projections of 0.3% and 2.9%, respectively. Investors long yearning for milder inflation in order to justify interest rate cuts celebrated Wednesday’s release. Futures for the S&P 500 baseline U.S. stock index climbed 0.4%, and yields for U.S. government bonds declined across maturities, signifying an increase in the value of bonds. Here’s What Got Cheaper And More Expensive In May Accounting for seasonal adjusting, gasoline prices declined 2.6% from April to May, and the CPI’s apparel and used cars and trucks indexes dropped 0.4% and 0.5% last month, respectively. Airline fares, eggs, smartphones and jewelry all dropped at least 1.5% month-over-month. On the flip side, household staples including bananas, peanut butter, propane and major appliances all got at least 3% costlier. Crucial Quote “Today’s below forecast inflation print is reassuring – but only to an extent,” Seema Shah Principal Asset Management’s chief global strategist, wrote in emailed comments. “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,” explained Shah. 3.9%. That’s where core CPI inflation will settle by the end of 2025, according to UBS economists. A full percentage point higher than May’s reading, that would be the highest inflation since January 2024. Key Background Core inflation did not register at 3.9% or higher from 1993 to 2020, putting in perspective the continuously high inflation pervading the U.S. economy since the COVID-19 pandemic. Though inflation has slowly cooled from the four-decade high of 9.1% in June 2022, economists warn Trump’s tariffs will likely result in a renewed uptick in prices for Americans. “Meaningfully larger increases are likely in coming months, although the precise timing and extent of the tariff effects on consumer prices is uncertain,” Michael Feroli, the chief U.S. economist at the country’s largest bank, JPMorgan Chase, explained in a recent note to clients. Yet Trump has repeatedly and falsely argued there is “no inflation” in his heavyhanded campaign for the Federal Reserve to lower interest rates. The Fed cuts rates when inflation is on trend to stabilize at 2%, and though it began cutting rates last year, it has not lowered borrowing costs since December even as other central banks took that path, as the Fed largely hesitated in response to the unknown effects of tariffs. The market prices in a less than 15% chance of a rate cut by July, a far cry from the more than 90% cut probability ahead of Trump’s April “Liberation Day” event showcasing his country-by-country levies, according to CME Group’s FedWatch Tool. Doge May Make Inflation Data Less Accurate The government calculates CPI by measuring price changes in a basket of goods and services a typical American consumer may buy, via surveys conducted using several methods, including field surveys from Bureau of Labor Statistics staff at places of business across the country. The agency said last week it was reducing the number of samples feeding into CPI in response to the federal government hiring freeze. This will “likely reduce the reliability of the CPI as a measure of inflation and increase the volatility in the monthly CPI prints,” according to UBS economist Alan Detmeister. Surprising Fact The average effective tariff rate for goods coming into the U.S. is about 14%, according to JPMorgan, up from the roughly 2% rate last year. Got a tip? Share confidential information with Forbes. Editorial StandardsReprints & Permissions