Tariffs Fuel Core Inflation Jump in May, Hinting at Fed Rate Watch

In May, the Consumer Price Index (CPI) experienced a slight increase, with the headline CPI showing - "0.1% month over last month" – meeting expectations. Despite inflation in other areas, stable gasoline prices played a role in this. However, in May the core CPI - which excludes volatile food and energy costs to an extent – rose by a larger 0.3%, the largest since January, suggesting more positive pressure on inflation from April’s 0.2% rise.

From April onwards, the headline CPI increased to 2.4% in May, while the core CIP rose to 2.9 percent year-over-year, up from 2.8% in the previous month. New import tariffs are the main cause of this acceleration in core inflation. Despite stable energy prices, analysts believe that the impact of tariffs on inflation will persist throughout the year, indicating that inflationary pressures are on the rise. How does this work?

The U.S.'s inflation has been slightly pushed back, particularly within its core components, according to the May CPI report. The Federal Reserve's monetary policy choices could be affected, potentially delaying the implementation of interest rate reductions. As businesses begin to pass on the burden of higher import costs to consumers, tariffs are expected to have a more significant effect on consumer prices in the next few months, according to economists.