May CPI Shows Tariffs Have Yet to Impact Inflation

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The latest Consumer Price Index (CPI) report showed inflation rose less than expected in May, signaling a muted impact from President Donald Trump's tariff policies.

According to the Bureau of Labor Statistics, headline CPI was up 0.1% month over month in May, slower than April's 0.2% rise and the 0.2% increase economists expected.

The CPI was 2.4% higher year over year, a tad bit quicker than the 2.3% increase seen the month prior and in line with economists' projections.

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Shelter was the "primary factor" for the increase in headline CPI, according to BLS, up 0.3% on the month. Energy costs, meanwhile, were down 1% in May as gas prices declined.

Core CPI, which excludes volatile food and energy prices and is seen as a better measure of underlying inflation trends, was up 0.1% from April to May and 2.8% year over year. Both figures came in below the 0.3% and 2.9% increases economists called for.

"The impact from tariffs did not officially arrive as expected in the May CPI release, with core goods seeing no price increases last month," says Jeff Schulze, head of economic and market strategy at ClearBridge Investments."

Schulze notes that some categories that are most exposed to Chinese supply chains saw a material boost, including toys and sporting goods. But "others, such as apparel and furniture, saw prices decline."

He adds that the Federal Reserve should "find solace" in the May CPI report, but will likely stick to its "'wait-and-see' messaging at next week's meeting."

This morning's inflation report, alongside news that the U.S. and China have reached a trade deal, is doing little to move the needle on rate-cut expectations.

According to CME FedWatch, futures traders are now pricing in a 55% chance the Fed will issue its next quarter-point rate cut at its September meeting, little changed from a week ago. The betting odds are for just one additional rate cut by the end of the year.

As for the next Fed meeting, which kicks off next Tuesday, June 17, and concludes on Wednesday, June 18, it's all but guaranteed that the central bank will hold interest rates steady.

With the May CPI data now in the books, here's some of what economists, strategists and other experts around Wall Street have to say about the results and what they could mean for investors going forward.

Experts' takes on the May CPI report

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"Inflation in May was lower than anticipated, suggesting the tariffs aren't having a large immediate impact because companies have been using existing inventories or slowly adjusting prices due to uncertain demand. If inflation stays under control or the job market weakens, the Federal Reserve will likely consider cutting interest rates down the road." – Alexandra Wilson-Elizondo, Global Co-CIO of Multi-Asset Solutions at Goldman Sachs Asset Management

"With lower-than-expected numbers across the board (with the exception of headline YoY, which stayed constant), and a trade deal with China that was agreed to in London, the narrative around tariff-induced inflation should subside. However, CPI remains above 2% and even though the tariff rates are going to be less than originally feared ... they will further increase the cost of goods. Because of this and the tariff pause that's scheduled to be lifted next month, we are still cautious." – Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management

"Another month goes by with little evidence of tariffs, but the longer-term inflation challenge they pose remains. Given the Fed likely shares that outlook, no one should be looking for rate cuts in the near future." – Ellen Zentner, Chief Economic Strategist for Morgan Stanley Wealth Management

"The jury is still out on the economic effects from tariffs. It will take one, maybe two more months for both the initial pull-forward and eventual lag in demand to be crystallized and show up in the economic data. The Fed is taking the summer off. They will come back in September with three more CPI and jobs prints in their data trove. If unemployment moves towards 5% and inflation is under 3%, they will likely cut at least 25 bps [basis points] in September." – Skyler Weinand, Chief Investment Officer at Regan Capital

"Tariff collections in May 2025 were about 3x higher versus May of 2024 and 2023, so we know they are being paid … but they didn't really show up in consumer prices last month. Maybe that's a reflection of pre-tariff inventory builds, but we need to continue monitoring corporate profit margins as closely as we're monitoring consumer inflation data to understand how and where this is transmitting to the economy." – Elyse Ausenbaugh, Head of Investment Strategy at J.P. Morgan Wealth Management

"Shelter and energy are going to keep the disinflation trend intact – prices are moving down in two of the largest categories, so investors should expect further declines in inflation in the coming months." – Jamie Cox, Managing Partner for Harris Financial Group

"Today's CPI report likely does not change the Fed's thought process heading into next week's FOMC. Changes to monetary policy remain on hold for now, with a base case penciling in two rate cuts for the back half of 2025. This allows the Fed to get a better handle on how the U.S. economy is digesting a higher tariff regime through the summer months. The next big market catalyst is likely to be next week's dot plot, which will be heavily scrutinized by investors for subtle signals as to where monetary policy may be heading." – Jason Pride, Chief of Investment Strategy and Research at Glenmede

"Despite sticky inflation, tariffs have not yet shown up in consumer prices, but a lot depends on the absorption rate of U.S. companies and foreign suppliers. We believe that the majority of the tariffs will eventually get passed to the consumer, but companies are cautious at this juncture about passing along the price increase." – Eric Teal, Chief Investment Officer for Comerica Wealth Management

With over a decade of experience writing about the stock market, Karee Venema is the senior investing editor at Kiplinger.com. She joined the publication in April 2021 after 10 years of working as an investing writer and columnist at a local investment research firm. In her previous role, Karee focused primarily on options trading, as well as technical, fundamental and sentiment analysis.