Prices increased less rapidly than anticipated in the previous month, counter to predictions under Trump's tariff implementation.
In a surprising twist, consumer prices ticked up less than anticipated in May, as the impact of higher tariffs began to take shape. Last month, the consumer price index rose a meager 0.1%, while annual inflation crept up from a four-year low of 2.3% in April to 2.4%. This latest Consumer Price Index data, released Wednesday by the Bureau of Labor Statistics, reveals a mixed picture of price hikes and weaker consumer demand.
While the harsh effects of tariffs weren't prominent in Wednesday's report, some potential indicators of price increases were scattered throughout. May's inflation reading offers a glimmer of hope for American consumers, who've been struggling with the escalating cost of living and the prospect of tariffs driving prices even higher. However, both the current State of the Economy and the ongoing trade policy landscape suggest that higher tariffs may eventually translate to pricier items and inflated inflation rates.
Forecasters projected that gas prices would keep the overall monthly inflation rate in check while year-ago comparisons grew less favorable. Predictions called for a 0.2% monthly rise and a CPI hike of 2.5% annually, but Wednesday's report proved "unambiguously good," as Michael Pugliese, senior economist at Wells Fargo, referred to it.
"This was a good reading in terms of looking for softer inflation," Pugliese told our company in an interview. "I think it's too early to draw any conclusions from whether the tariffs are having 'X' effect or 'Y' effect."
Following the data release, stock futures soared, with the Dow rising around 165 points by midday, or 0.38%. The S&P 500 climbed 0.15%, and the Nasdaq Composite gained 0.18%.
One critical indicator of underlying inflation, the core CPI, remained stable, with a 0.1% rise from April, and holding steady at a 2.8% annual rate. Economic analysts have warned that price pressures would continue to build as businesses grapple with President Trump's tariff escalation and unstable trade policy.
However, the lag in economic data, shifting tariff policy, and pre-tariff inventory measures mean it might take some time before consumers start to feel the impact of higher tariffs and accompanying inflation rates. Various factors, including businesses absorbing tariff costs and retailers offering sales and discounts to maintain customer loyalty, have helped mitigate the immediate effects of increased tariffs.
Some businesses confronted with higher tariff bills have chosen to raise prices straightaway, while others have attempted to spread out the impact. Mid-May saw Walmart's CEO revealing that the world's largest retailer would "do our best to keep our prices as low as possible" but that price hikes would commence later in May. Lalo, a company with significant exposure to tariff risks, revealed unwelcome news recently: After delaying the inevitable for months, the company would eventually have to raise its prices.
Efforts to keep customers informed of the company's navigation through tariff-laden waters were met with a tough truth: as of June 23, prices for the majority of their products would increase. Lalo is absorbing a significant portion of the higher tariffs while retail partners have shouldered some of these costs as well.
The May CPI report showed negligible widespread impacts from higher tariffs, but certain tariff-sensitive goods industries displayed notably sharper price hikes. Appliance prices rose for the second month in a row, the highest monthly rate in nearly four years. Toy prices, sporting goods, and tools all exhibited similar price trends. Apparel prices, however, dropped 0.4% for the month.
While the latest CPI data might suggest that foreign manufacturers are bearing the burden of tariffs, economists caution that US businesses, who import goods, are currently shouldering this cost. These companies can't absorb the burden indefinitely, leading experts to predict that consumer price inflation will climb in the coming months. To better understand the extent to which businesses are still absorbing price hikes, data on the Producer Price Index—a crucial gauge of wholesale-level inflation—will be released on Thursday morning.
Despite the lingering effects of tariffs and the steady march of inflation, Federal Reserve policymakers are unlikely to be pulled from their extended period of inactivity. The latest CPI figures, combined with solid employment data, indicate little urgency for action from Federal Reserve officials. However, experts warn of weakening job gains, an uptick in layoff announcements, and a steady unemployment rate held in check by reduced immigration—situations that could see the Fed called back into action as the economic situation worsens.
- The mixed Consumer Price Index data, along with the ongoing trade policy landscape and the potential for tariffs driving prices higher, reflects a complex relationship between finance and politics, where economic decisions can significantly impact general-news headlines.
- While some tariff-sensitive goods industries, such as appliances, toys, sports goods, and tools, have experienced notably sharper price hikes, economists caution that the US businesses importing these goods are currently shouldering the cost of tariffs, which may lead to future increases in consumer price inflation, highlighting the interplay of finance, politics, and general-news.
