The U.S. Labor Department’s consumer price index yesterday indicated that prices rose 0.1% in May compared with the previous month, less than most economists anticipated. Year-over-year inflation was 2.4%, in line with expectations after a four-year low of 2.3% was reported in April.
Many forecasters expected that tariffs might have hiked prices more, though that scenario did not materialize in May. Prices did rise for some items exposed to tariffs, including appliances, car parts and audio equipment, The Wall Street Journal reported, though in sum, the effect of the tariffs was muted in the report.
“Even when we’re getting into months where we could see the tariff impact, it might be the case that demand is soft enough that we’re not seeing huge increases in prices because you can’t really pass on as much as a business might want,” said Veronica Clark, U.S. economist at Citigroup, in The Wall Street Journal.
The month of May, the economist said, is too early to tell the ultimate effects of the tariffs. “But if we’re still not seeing much impact by late summer or early fall, that looks like a very different story,” Clark said.
The Federal Reserve will look closely at inflation figures before its meeting next week. If inflation nears its target of 2% annual increase, the central bank may be more likely to consider rate cuts, though rate cuts are not widely expected.
If inflation isn’t as troublesome as feared in the coming months, The Wall Street Journal said, the Fed would have a path to resume cutting interest rates later this year, especially if the labor market continues to weaken through the summer.
