**May CPI Cools Slightly, but Tariff Risks Cloud Rate Cut Outlook**
The Consumer Price Index (CPI) rose by just 0.1% in May on a month-over-month basis, undershooting the consensus estimate of 0.2% and slowing from April’s 0.2% increase, according to the Bureau of Labor Statistics (BLS). On an annual basis, headline inflation rose 2.4%, slightly below the expected 2.5%, but higher than April’s 2.3% reading.
Core CPI, which excludes volatile food and energy costs, also increased by 0.1% for the month—well below the 0.3% forecast and April’s 0.2%. Year-over-year, core inflation held steady at 2.8%, just under the anticipated 2.9%.
Shelter costs were a key driver of overall price increases, rising 0.3% in May and making the largest contribution to the monthly CPI uptick. Food prices also rose 0.3%, while energy prices declined by 1.0%, helping to offset some inflationary pressures.
Despite the modest cooling in inflation, economists caution that recently announced tariffs could reverse the downward trend. Goldman Sachs predicts core inflation could rise by approximately 0.35% monthly in the short term, raising concerns about more persistent inflationary forces fueled by trade policy.
The Federal Reserve is widely expected to keep interest rates unchanged at its upcoming meeting, with futures markets assigning a 99% probability that policy will remain steady, according to CME FedWatch. However, the outlook beyond June is less certain. The July Fed meeting could be more data-driven, especially if new inflation data show signs of reacceleration.
Some Fed officials have already signaled that if core inflation remains elevated due to tariffs, it could delay or reduce the likelihood of future rate cuts, reinforcing the central bank’s commitment to a data-dependent approach.
