May CPI Cools Slightly, but Tariff Risks Cloud Rate Cut Outlook 

The Consumer Price Index (CPI) rose 0.1% month-over-month, below the 0.2% consensus and April’s 0.2% pace. On an annual basis, headline CPI increased 2.4%, slightly under the 2.5% estimate and up from 2.3% in April, according to the Bureau of Labor Statistics. 

Core CPI, which strips out food and energy, climbed just 0.1% for the month, sharply below the 0.3% forecast and April’s 0.2%. On a year-over-year basis, core inflation held steady at 2.8%, just below the 2.9% consensus.  

Shelter costs rose 0.3% in May, making it the largest contributor to the monthly increase in overall prices, according to the BLS. Food prices also climbed 0.3%, while the energy index declined 1.0%, helping to offset some of the upward pressure. On a year-over-year basis, headline inflation rose 2.4%, slightly above April’s 2.3% reading but below the 2.5% consensus forecast. 

Economists warn that recently announced tariffs may reintroduce upward pressure on prices. Goldman Sachs forecasts that core inflation could rise by 0.35% per month in the near term, raising concerns about persistent inflation—even if the sources are temporary or policy-driven. 

The Federal Reserve is widely expected to hold rates steady at next week’s meeting, with futures markets pricing in a 99% probability, according to CME FedWatch. However, the July meeting could be more data-dependent, especially if inflation metrics turn higher. 

Some Fed officials have already indicated that elevated core inflation, particularly if driven by tariffs, could delay or limit future rate cuts, reinforcing the central bank’s data-driven stance.