May CPI Report Forecasts Show Slight Uptick in Inflation as Tariff Effects Loom

Key Takeaways

• Economists forecast the CPI to rise 0.2% in May after rising by the same amount in April.
• The goods data will be closely watched for early signs of tariff-driven inflation, with larger impacts expected in the months ahead.
• The Federal Reserve is widely expected to leave interest rates unchanged in June, with room for a potential cut in July.

The May Consumer Price Index Report is expected to show a slight uptick in inflation, as uncertainty lingers over when the effects of President Donald Trump’s trade war will start showing up in the data.

Economists expect that the CPI rose 0.2% on a monthly basis in May, according to FactSet’s consensus estimates. That would push the annual inflation rate to 2.5% in May from 2.3% in April. Economists expect that core inflation, which excludes volatile food and energy prices, rose 0.3% on a monthly basis and 2.9% on an annual basis.

Economists will be watching May’s data closely for signs of inflationary effects due to Trump’s sweeping tariff announcement in early April. “May’s CPI report will be an important test of the speed and magnitude to which higher tariff rates are being passed along to the consumer,” Wells Fargo economists wrote in a note last week.

Despite the looming impact of tariffs, Interactive Brokers senior economist Jose Torres says inflation is in a good spot for now. “A lot of what we hear anecdotally is fears, not actual manifestation,” he says. The Personal Consumption Expenditures Index, the Federal Reserve’s preferred measure of inflation, posted a softer-than-expected increase of 2.1% in April, right near the central bank’s target.

May CPI Report Highlights

• CPI report release date and time: Wednesday, June 11, at 8:30 a.m. EST
• The CPI is forecast to rise 0.2% in May after rising by the same amount in April.
• Core CPI is forecast to rise 0.3% in May after rising 0.2% in April.
• The CPI year over year is forecast to rise 2.5% in May after rising 2.3% in April.
• Core CPI year over year is forecast to rise 2.9% in May after rising 2.8% in April.

Torres expects headline CPI to rise 0.1% and core CPI to increase 0.2% in May, both slightly below consensus estimates. “I see food and energy costs down, goods up a little but, and services up a little bit,” he says.

Bank of America economists forecast both headline CPI and core CPI to rise 0.2% in May. Meanwhile, Wells Fargo economists anticipate headline CPI to rise by 0.15% and core CPI to rise by 0.27%.

Will the May Report Show Inflationary Effects From Tariffs?

“The May CPI report will test whether April’s potential signs of tariffs were early glimmers of inflation effects to come or more typical monthly noise,” wrote Wells Fargo economists. “Core goods ex-new and used autos matched its largest monthly rise in more than a year in April, with notable strength among household, recreational and IT goods. Whether these categories deliver a repeat performance will help to determine if higher import duties are indeed being passed on to consumers, or if April’s strength was merely a function of volatility in the data.”

At Goldman Sachs, economists expect tariff-related inflation to appear in apparel, recreation, and communication, according to a note published Monday. However, the impact is expected to be small. “In subsequent months starting in June, we expect to see a larger tariff boost and higher core CPI prints,” they said.

Meanwhile, Bank of America economists expect core goods inflation to accelerate to 0.2% in May and to see “broader impact on the data than last month.”

Despite the potential inflationary impact on goods, Torres says the share of goods as a percentage of the US economy has gone down over time. “We’ve become more and more services oriented, which means that we have much more of a cushion in terms of having these kinds of adversarial trade conflicts,” he says.

When Will the Fed Cut Rates?

Amid uncertainty around tariffs and their impact on the economy economy, the Fed has opted to leave rates unchanged so far in 2025.

“Uncertainty about the economic outlook has increased further,” the central bank wrote in its press release following the Federal Open Market Committee’s May meeting. “The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.”

The bond futures market prices in a 99% chance that the Fed will continue to hold rates steady at its June meeting, according to the CME FedWatch tool, while putting a roughly 85% chance of holding steady again in July. The current federal-funds rate target range is 4.25%-4.50%.

Torres expects to see rates hold steady in June, but he anticipates a cut in July and one or two more by year-end. “With inflation in the low 2s and the Federal Funds Rate up in the mid 4s, it’s really restrictive from a pure spread basis,” he explains. “It’s too restrictive for too long. One or two cuts can narrow that gap and set a more appropriate course for policy going forward.”