US Inflation Rises Less Than Expected in May, Trump’s Tariffs Have Modest Impact
The latest data on US inflation has shown that consumer prices rose less than expected in May, indicating that President Donald Trump’s tariffs are having only a modest impact so far. The annual consumer price index figure for May came in at 2.4 per cent, below the 2.5 per cent forecasted by analysts surveyed by Bloomberg, but higher than the 2.3 per cent recorded in April.
The core measure, which excludes changes in food and energy prices, remained steady at 2.8 per cent, defying expectations of a slight increase. According to Samuel Tombs, chief US economist at Pantheon Macroeconomics, the impact of tariffs on consumer prices remains minimal at this point, as retailers typically take several months to pass on cost increases to consumers.
However, Daniel Hornung, a senior fellow at MIT, pointed out that the positive aspects of the report, such as lower airfares, are not directly related to tariffs. Despite this, Treasury secretary Scott Bessent highlighted the improvement in inflation due to the administration’s policies during his testimony before the House ways and means committee.
Looking ahead, inflation is expected to rise further in the coming months as the effects of Trump’s tariffs, implemented in April, are felt by consumers and businesses in the US. The country currently imposes a 10 per cent tariff on most imports, along with higher levies on Chinese goods.
Following the release of the inflation data, the US two-year Treasury yield dropped by almost 0.1 percentage point to below 3.95 per cent. Stock markets opened higher, with the S&P 500 up 0.1 per cent in morning trading on Wall Street, while the dollar index fell by 0.3 per cent.
The Federal Reserve is likely to maintain its current interest rates when it meets next week, with expectations of further inflationary pressures. Market projections suggest that there could be two rate cuts by the end of the year, with the first one possibly in September or October.
Goldman Sachs Asset Management’s Alexandra Wilson-Elizondo stated that the Fed could consider rate cuts if inflation remains under control or if the job market weakens. President Trump has been vocal about his desire for interest rate cuts, pressuring Fed chair Jay Powell to follow the lead of other central banks.
In response to the inflation data, US vice-president JD Vance criticized the Fed’s reluctance to cut rates, calling it “monetary malpractice.” Cornell University professor Eswar Prasad anticipates more pressure from the White House for rate cuts as economic and political challenges intensify in the months ahead.
The Fed’s preferred inflation measure, the personal consumption expenditures index, dipped to 2.1 per cent in April but is expected to increase in the coming months. As economic uncertainties persist, policymakers will need to carefully balance the need for inflation control and economic growth.
