May CPI Report: What the Experts Are Saying About Inflation

Inflation continued to ease last month, the CPI report showed, paving the way for the Fed to pause in its campaign of rate hikes.

cpi report
(Image credit: Getty Images)

Headline inflation continued to cool last month with prices rising on an annual basis at the slowest pace in more than two years, the May Consumer Price Index (CPI) report showed Tuesday. 

Although elements of core inflation, which excludes volatile food and energy costs, remained stubbornly elevated, experts agree the latest CPI report supports the case for the Federal Reserve to "skip" hiking interest rates at the next Fed meeting.

The central bank's rate-setting group, known as the Federal Open Market Committee (FOMC), will conclude its regularly scheduled two-day policy meeting on Wednesday. 

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Inflation decelerated to 4% year-over-year in May, the Bureau of Labor Statistics said before markets opened Tuesday, down from the 4.9% increase in prices seen the prior month. The headline figure, which came in below economists' forecast for a 4.1% rise in prices, represented the lowest level of inflation since March 2021.

On a monthly basis, inflation rose 0.1% – down from 0.4% in April – to match economists' estimate. 

On a less positive note, core inflation remained "sticky," rising 5.3% on an annual basis. Although that was lower than April's core CPI reading of 5.5%, it came in above forecasts for a gain of 5.2%. Monthly core CPI rose 0.4%, which was in line with estimates and was unchanged from the readings seen in April and March. 

Federal Reserve Chair Jerome Powell and the FOMC are open to what is being called a "hawkish pause" when it concludes its meeting on Wednesday. Given the split nature of the latest CPI report, experts believe the FOMC will leave interest rates unchanged tomorrow, but could very well hike again when it convenes in July. 

With the May CPI report now a matter of record, we turned to economists, strategists, investment officers and other experts to get their takes on what the inflation data means for markets, macroeconomics and monetary policy going forward. Below please find a selection of their commentary, sometimes edited for brevity or clarity.

Expert takes on the CPI report

two people pointing at a stock screen cpi report inflation

(Image credit: Getty Images)

"Today's CPI number was a relief for the market, as the data met expectations, confirmed the disinflationary trend, and re-affirmed current market pricing of a Fed pause tomorrow. However, the rate of disinflation remains incompatible with the Fed's 2% target. Furthermore, the Fed's closely watched 'supercore' figure, which shows the cost of workers to deliver services, accelerated. We expect the Fed to deliver a hawkish pause tomorrow and to highlight the possibility of following a similar path to the Reserve Bank of Australia and the Bank of Canada, who both hiked after a pause." – Alexandra Wilson-Elizondo, deputy chief investment officer of multi asset solutions at Goldman Sachs Asset Management

"Today's reading on May CPI reaffirms our view that the Fed will likely remain on hold at the June FOMC meeting as it assesses the lagged effects of prior rate hikes and ongoing stresses in small and regional banks. In our view, the Fed is likely to retain an upside bias to its policy rate path by maintaining language in the statement about the potential for additional policy rate firming." – Stephen Juneau, U.S economist at BofA Securities

"Headline CPI has shown dramatic improvement since its peak last year. While this is positive news for the U.S., home and auto consumers are still feeling the effects of this historic run of inflation as shown by the core figure. All in all, this release should solidify the argument for a pause in interest rate increases at tomorrow's Federal Reserve meeting." – Ben Vaske, investment strategist at Orion Portfolio Solutions

"We believe the Fed will pause at the conclusion of their meeting tomorrow, but would not rule out future interest rate hikes as the labor market remains strong and as economic growth continues on a positive trajectory. The Fed's target remains core inflation, and in particular, service inflation, both of which remain stubbornly high. Also, according to the latest CPI report, core inflation is still running at an annual clip of 5.3%, so we do not see a Fed pivot on the horizon anytime soon." – Ivan Gruhl, co-chief investment officer at Avantax

"The Fed's inflation fight continues to move in the right direction, but overall progress remains frustratingly slow. Headline inflation has shown the most progress, but is still unacceptably high. Even more troubling is the recalcitrance of core inflation. Directional progress should not be confused with mission accomplished. If, as we expect, core CPI is still growing at a 3.0% to 3.5% annualized rate in the fourth quarter of this year, it should keep the FOMC from cutting rates until 2024. In the more immediate future, today's data should lock in a pause at the June FOMC meeting, i.e. no rate hike. However, we expect Chair Powell's press conference and the latest Summary of Economic Projections to signal that one more rate hike is still in the cards." – Sarah House, senior economist at Wells Fargo Economics

"This report gives the Fed the justification to pause and see if the medicine is working. Unfortunately, core CPI is still stubbornly high, so Powell can't celebrate until we see some relief in the broader areas of the economy. Housing was unchanged, but we certainly need housing to come down before July's rate decision for the Fed to defend the pause." – David Nicholas, portfolio manager at XFUNDS

"The fact that there was no significant upside surprise in the May 2023 inflation data leads us to believe that the Fed should have no reason for any significant policy changes to alter the trajectory of U.S. inflation. The Fed may have to remain data-dependent heading into their July meeting next month." –  Robert Conzo, managing director at The Wealth Alliance 

"CPI numbers for May were generally in line with street consensus. However, on a year-over-year basis, the numbers were more mixed. While 4% headline inflation is still high, we believe the move down from over 9% inflation at its peak is a significant decline and therefore the Fed is likely to carry out its hawkish pause in tomorrow's meeting." – Lundy Wright, fixed income portfolio manager at Weiss Multi-Strategy Advisers

"For now, all the progress in bringing down inflation has been made by the energy component of the index, which means that the disinflation process remains dependent on continued weakness in energy prices. Betting on continued weakness in such a volatile component of inflation is not a good strategy for policymakers. However, this result may help the Federal Reserve decide whether to pause its interest rate hike campaign. Having said this, if the Fed doesn't see increased signals of weakness in core prices soon, it may be pushed to increase interest rates further." – Eugenio Alemán, chief economist at Raymond James

"The supercore proxy was 3.0% annualized, down a lot from 4.2%. Indeed, the latter will likely weigh heavily on the side of the FOMC keeping policy rates unchanged tomorrow. But with regular core inflation running at 5.3% year-over-year, which is still slightly above the fed funds target range (5.0% to 5.25%), we could see a dissent or two on a decision to pause." – Michael Gregory, deputy chief economist at BMO Capital Markets 

"Ignore the core. Strip out the used car anomaly and the rental measures, which are still running hot but soon to come off the boil, and the core CPI was up less than +0.1% and that followed on the heels of a sub +0.2% reading in April. Not since January-February 2021 have we seen successive prints this low. The Fed should be totally chill with today's number. Outside of rents and used cars, we have reached a stage where there is very little inflation to speak of." – David Rosenberg, founder and president of Rosenberg Research

"The nearly 1% move lower in inflation from April to May is a feather in the cap for the Fed, which appears to be achieving its mandate of widespread price stability. The likelihood of 3% inflation by the end of the year is well within reach, and suggests that the Fed will likely 'pause' rather than increase another 0.25%." – Peter Essele, head of portfolio management at Commonwealth Financial Network

"The CPI report was largely as expected, so the Fed will likely hold off on another interest rate increase at its decision tomorrow. A rate hike is still possible in July or the following decision in September, but the Fed looks slightly more likely to hold rates steady in its next few decisions; it's a close call." – Bill Adams, chief economist at Comerica Bank

"Again, the biggest contributor to inflation was shelter. Since the shelter component of CPI works with a lag, inflation was arguably understated in 2021 and early 2022 and is overstated now. Today's data reinforces the case for the Fed to refrain from a further interest rate hike this week." –Patrick Horan, economist at the Mercatus Center

"Gold climbed higher, as did the dollar, pointing to still stubborn inflation within the core and expectations that the FOMC will need to raise rates following this week's 'skip.'  Unless there's a more material move lower in core inflation, a July 26 rate hike remains in play." – Quincy Krosby, chief global strategist at LPL Financial

"Tuesday's Consumer Price Index suggests that inflation has been defeated. Most of the inflation we are seeing is coming from housing, but it takes time for home price declines to show up in the CPI data, so today's 4% inflation rate is actually much closer to the 2% Federal Reserve target. The bond market agrees that inflation has been defeated, as bond yields moved lower across all points of the yield curve following Tuesday's CPI data. The Federal Reserve will keep interest rates unchanged on Wednesday, with the market now confirming almost a certainty of a pause." – David Bahnsen, chief investment officer at The Bahnsen Group

"The meaningful deceleration in core services ex-shelter adds conviction to our expectation of no rate hike at tomorrow's FOMC meeting, and instead the Fed will signal a 'hawkish skip,' keeping the door open for a potential rate hike in the future." – Gargi Chaudhuri, head of iShares Investment Strategy, Americas

"Today's report is a non-event, which is extremely important as the Fed's bias is clearly to pause tomorrow and leave interest rates unchanged, which is something that would have been difficult had this been an upside surprise to the inflation numbers. Inflation is still much too high, but the trend is in the right direction and the Fed is ready to take a break from raising interest rates. The resilience in the economy has been surprising – especially given the headwinds of 500 basis points [5.0%] in tightening – and that is why the stock market has come roaring back. Eventually, higher rates will take their toll on the economy and markets, but in the meantime, both are likely to persist for longer than almost anyone would have expected as recently as six months ago." – Chris Zaccarelli, chief investment officer at Independent Advisor Alliance

"This CPI report is everything the Fed needs to pause – there is deflation and/or disinflation in every category. Even the stickier parts of the dataset, namely rents, have reached an inflection point. There will be some hawks who dissent tomorrow on a pause, but that's where the Fed is going. If this trajectory holds in June, the need for further tightening is behind us." – Jamie Cox, managing partner at Harris Financial Group

"Overall, the data set should provide cover for the Fed to take a pause at tomorrow's meeting, but the sixth consecutive month of increases above 0.4% in core inflation questions the need for more rate hikes and leaves the option open for another hike at the July meeting. On the other hand, adding another 25 to 50 basis points of rate hikes is not likely to change the trajectory of inflation after the Fed has already implemented 500 basis points of tightening, and perhaps the best ammunition for the Fed to fight inflation currently is time." – Charlie Ripley, senior investment strategist at Allianz Investment Management

Dan Burrows
Senior Investing Writer,

Dan Burrows is Kiplinger's senior investing writer, having joined the august publication full time in 2016.

A long-time financial journalist, Dan is a veteran of SmartMoney, MarketWatch, CBS MoneyWatch, InvestorPlace and DailyFinance. He has written for The Wall Street Journal, Bloomberg, Consumer Reports, Senior Executive and Boston magazine, and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor's Business Daily, among other publications. As a senior writer at AOL's DailyFinance, Dan reported market news from the floor of the New York Stock Exchange and hosted a weekly video segment on equities.

Once upon a time – before his days as a financial reporter and assistant financial editor at legendary fashion trade paper Women's Wear Daily – Dan worked for Spy magazine, scribbled away at Time Inc. and contributed to Maxim magazine back when lad mags were a thing. He's also written for Esquire magazine's Dubious Achievements Awards.

In his current role at Kiplinger, Dan writes about equities, fixed income, currencies, commodities, funds, macroeconomics, demographics, real estate, cost of living indexes and more.

Dan holds a bachelor's degree from Oberlin College and a master's degree from Columbia University.

Disclosure: Dan does not trade stocks or other securities. Rather, he dollar-cost averages into cheap funds and index funds and holds them forever in tax-advantaged accounts.