The Consumer Price Index in May rose 2.4% on an annual basis, reflecting a cooler-than-expected increase last month and signaling that the impact of President Trump’s tariffs hasn’t yet trickled through to prices on everyday items bought by Americans. 

By the numbers

The CPI was forecast to rise 2.5% last month on an annual basis, an increase from April’s 2.3% rate, according to economists surveyed by financial data firm FactSet. 

So-called core inflation, or CPI data that excludes volatile food and energy prices, rose by 2.8% over the past 12 months, the Bureau of Labor Statistics said. Economists polled by FactSet had predicted a 2.9% increase for that measure. 

The CPI, a basket of goods and services typically bought by consumers, tracks the change in those prices over time.

What’s driving the numbers

The inflation rate likely rose less than expected due to a sharp dip in gasoline prices. Lower energy prices were a “major source of disinflationary/deflationary pressure,” noted Adam Crisafulli, an analyst with Vital Knowledge. 

Gasoline prices dropped 12% in May from a year earlier, the CPI data shows. 

Other items that declined in price included clothing, which slipped by 0.9% from a year earlier, and airline fares, with a 7.3% decline. Offsetting that were price hikes on items including some grocery items, including beef and coffee, as well as housing costs.

While inflation remains far lower than during its post-pandemic spike — when it reached a peak of 9.1% in June 2022 — it’s still higher than the Federal Reserve’s goal of driving it down to a 2% annual rate. 

Because of that, Wall Street expects the Fed to hold off on cutting rates until later this year, with economists polled by FactSet giving a 100% probability that the central bank will keep rates steady at its June 18 meeting. 

Economists are also keeping a watchful eye on when Mr. Trump’s tariffs, which he has imposed on almost every nation on the globe, will show up in the inflation data. Tariffs are paid by U.S. companies when they import foreign goods, and Walmart and other importers have said they expect to hike prices for consumers to pass along those costs.

So far, the impact of those tariffs appear to be limited, although economists are forecasting that the inflation rate could edge above 3% by year end. The tariff impacts could start to show up in the CPI data later this summer, said Seema Shah, chief global strategist at Principal Asset Management, in an email after the CPI data was released. 

“Today’s below forecast inflation print is reassuring — but only to an extent,” Shah added. “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 materialise.”