U.S. consumer price inflation rose less than expected in May, though the Consumer Price Index (CPI) showed price increases for a broad range of goods and services.
According to the latest CPI report, inflation rose 0.1% month over month in May, slower than April's 0.2% increase and the 0.2% rise economists expected.
The CPI was 2.4% higher year over year, a slight uptick from the 2.3% increase seen the month prior and in line with economists' projections.
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. Economists expected core CPI to be up 0.3% and 2.9%, respectively.
"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."
CPI is still above the Fed's 2% target
Despite the encouraging data, the bottom line from the May CPI report is that prices are still rising faster than consumers and the Fed would like.
Between 2000 and 2020, annual inflation in the U.S. averaged just 2.1%. (Recall that the Federal Reserve's inflation target is 2%.)
Perhaps we didn't appreciate it enough at the time, but the first two decades of the 21st century were a sort of Goldilocks era for inflation: not too fast and not too slow.
Just have a look at some of the subcategories in the latest CPI report to see how much things have changed. Below, we highlight the goods and services that are weighing most heavily on folks' finances.
Rising prices: where inflation is hitting hardest
Grocery prices were on the rise in May, as three categories saw increases.
The indexes for fruits and vegetables; cereal and bakery products; and other food at home all increased, though the price of meats, poultry, fish, and eggs; dairy and related products; and nonalcoholic beverages were all down.
Notably, the price of eggs was 2.7% lower month over month, though they remained 41.5% higher from the year-ago period.
The food away from home category, which includes meals at restaurants and bars, rose 0.3% in May after gaining 0.3% in April.
Another contributor to inflation was electricity, which was up 0.9% on the month. Still, overall energy costs were down as gasoline and natural gas costs declined.
Housing costs, or the shelter index, also remained sticky and lifted inflation last month.
"The index for shelter rose 0.3 percent in May and was the primary factor in the all items monthly increase," the Bureau of Labor Statistics said. "The index for owners' equivalent rent rose 0.3 percent in May and the index for rent increased 0.2 percent."
Elsewhere, prices for motor vehicle insurance index rose 0.7% in May, while medical costs were also on the rise. Indeed, the medical care index was up 0.3% due to higher prices for hospital services and prescription drugs.
There was some good news for consumers in the May CPI report: Prices for airfare, new and used cars, and apparel were all lower last month.
Where inflation goes from here is hard to say as forecasters brace for the potential impact of tariffs under the Trump administration.
"CPI's dip under 2.5% in the spring months might be as good as it gets this year for inflation," says Comerica Chief Economist Bill Adams.
"Wobbly" consumer demand was likely a reason for the tame data, Adams notes, adding that the Fed's Beige Book "has reported anecdotes of consumers acting skittish due to anxiety about the economy."
As a result, several "businesses likely discounted in May to keep customers coming in the door," the economist says.
However, he believes "there's a limit to how long businesses will absorb higher input prices," and expects inflation to pick up in the second half of the year.
