Fresh inflation data showed consumer price pressures eased more than expected in May, supporting investor sentiment even as US-China trade talks concluded with few changes.
The Consumer Price Index (CPI) increased just 0.1% in May, with annual inflation cooling to 2.4%, in line with forecasts.
Core CPI, which strips out volatile food and energy costs, also climbed 0.1%, coming in below the 0.3% rise economists had expected.
Economists at Wells Fargo welcomed the latest CPI data but cautioned that the full effects of recent tariff increases—most of which took effect between March and May—may not yet be visible. “It is too early to declare victory,” they wrote, projecting that core CPI could rise above 3% in the coming quarters due to higher import duties.
For now, the Federal Reserve is expected to hold interest rates steady at its upcoming meeting. “The FOMC will likely be content to stand pat and await the next round of economic data,” Wells Fargo said.
Bank of America economists described the CPI report as another “soft print,” with both headline and core inflation up just 0.1% month-over-month. Core goods prices fell slightly, led by a 0.3% drop in auto prices, while services inflation remained subdued.
“There was a hint of tariffs in the data,” BofA said, pointing to price increases in items such as household furnishings and toys, but overall, the impact from tariffs was smaller than anticipated.
Comerica’s chief economist Bill Adams also struck a cautiously optimistic tone, saying May’s weaker-than-expected CPI was “good news.” Lower gasoline prices helped, and shelter inflation showed signs of slowing amid increased housing supply and softening demand.
“The big surprise in the May CPI report was the declines in some core goods where tariff effects had seemed likely,” Adams said. “Prices of new and used cars and of apparel all fell, despite tariffs increasing the costs of imports.”
Still, he warned that forward-looking indicators such as the ISM surveys suggest rising input costs for businesses, which could drive inflation higher later this year. “There’s a limit to how long businesses will absorb higher input prices,” he said. “Inflation looks likely to pick up in the second half of the year.”
Investors and policymakers will now look ahead to Friday’s release of the Producer Price Index and next week’s Fed decision for further signs on the direction of inflation and interest rates.