US inflation rose just 0.1% from April to May despite tariffs
Consumer prices increased 2.4% in May compared with a year earlier. The data point is better than expected, but does not suggest immediate interest rate cuts


Donald Trump’s erratic trade policy is jeopardizing the soft landing of the U.S. economy, steered by Federal Reserve Chairman Jerome Powell. Just as inflation was finally approaching the 2% price stability target, the tariffs imposed by the president on the world are threatening to push it up again, although so far their effect has been limited. Prices rose 0.1% on a monthly basis in May, according to data released Wednesday by the Bureau of Labor Statistics. Inflation rose 2.4% in May from a year earlier, compared with a 2.3% yearly increase in April. Economists had been expecting an annual increase of 2.5%.
Gasoline price cuts helped to contain prices, but core inflation, which excludes food and energy prices, rebounded to 2.8%, suggesting that the battle against inflation is not yet won. Food prices rose 0.3% in May and 2.8% over the previous 12 months, slightly better than the 2.9% that had been expected, while services inflation is above 3%.
The rise in the price of goods, however, remains contained and seems to indicate that tariffs have hardly been passed on to products. Trade concerns have eased somewhat with the U.S.-China agreements after Trump agreed to back down if Beijing withdrew its retaliatory tariffs. Major chains had warned of the risk of price hikes and empty shelves if unsustainable tariffs of more than 100% on Chinese goods were maintained.
The news has been well received by the markets, especially Treasury bonds. In any case, the coming months will show to what extent the tariffs are putting pressure on prices. Businesses and consumers accelerated imports in the first quarter to avoid these new levies, so they have had some extra time to digest the protectionist measures.
Uncertainty over tariffs has also weakened the economy, complicating the Federal Reserve’s dual mandate. The central bank’s monetary policy committee meets next week, and investors are expecting it to keep interest rates at their current level of 4.25% to 4.50%.
The implied probabilities in the federal funds futures market point to rates remaining unchanged at the July 30 meeting, but a first cut of 0.25% is viewed as possible at the September 17 meeting, according to data from the FedWatch tool.
The labor market has also cooled somewhat. While Trump persistently presses the Fed to lower interest rates, Powell has made it clear that he will be guided by economic criteria and not by political pressure.
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