May’s inflation numbers came in softer than expected, with the Consumer Price Index (CPI) rising just 0.1% for the month. On an annual basis, inflation edged up slightly from April’s four-year low of 2.3% to 2.4% in May, but still below projections. This lower-than-forecast result was largely influenced by declining energy and gasoline prices, while food prices experienced a modest increase.
The Core CPI, which excludes the more volatile food and energy categories, also increased 0.1% month-over-month and maintained an annual growth rate of 2.8%.
Shelter costs remain the largest driver of inflation, accounting for 35% of the total CPI and 44% of the core CPI. With such a significant share, changes in shelter expenses have a major impact on overall inflation trends. However, it’s worth noting that the CPI might overestimate shelter costs compared to more current rental market data, hinting that actual inflation could be even lower than reported.
What’s the bottom line?
The latest inflation figures were a welcome surprise. Still, it’s important to recognize that the effects of tariffs may not yet be fully reflected in these numbers. For example, prices for apparel and both new and used vehicles declined in May, despite expectations that tariffs would push them higher.
This could indicate that companies are still selling inventory purchased at earlier, lower costs or have not yet passed higher expenses on to consumers.
