May Inflation Data to Reveal Tariff Impact on Consumer Prices
The May Consumer Price Index (CPI) report, scheduled for release Wednesday, is expected to show a slight acceleration in price growth as investors closely watch for signs of how President Trump’s tariff hikes are affecting consumer costs.
According to Bloomberg consensus estimates:
- Headline CPI is projected to rise from April’s 2.3% year-over-year rate (the lowest since February 2021) to 2.4%
- Month-over-month prices are expected to increase 0.2%, matching April’s pace
- Core CPI (excluding food and energy) is forecast to rise 2.9% year-over-year, up from 2.8% in April
- Core CPI month-over-month is expected to jump 0.3%, accelerating from April’s 0.2% gain
The report covers a period roughly one month after Trump’s “Liberation Day” tariff declarations roiled markets and businesses. While several retaliatory tariffs have been paused, the baseline 10% tariffs on most countries remain in effect, along with:
- Fentanyl-related tariffs on Mexico and Canada
- Special tariffs on steel, aluminum, and automobiles
- Elevated tariffs on Chinese goods (effectively around 30%)
Tariff Transmission Effects Under Scrutiny
“This May CPI report will serve as a critical test of how quickly and significantly tariff increases are passing through to consumers,” noted a preview report from Wells Fargo economists led by Sarah House.
While House expects commodity price increases to drive modest upward pressure on both headline and core inflation, she doesn’t anticipate a dramatic spike in May data. Nevertheless, her team joins most Wall Street forecasts in warning about rising price pressures later this year.
Goldman Sachs’ Jan Hatzius highlighted that future tariffs could exert greater upward pressure on monthly inflation, predicting core CPI month-over-month gains of around 0.35% in coming months. He observed “sharp acceleration” in most core goods categories, though noting limited near-term impact on core services inflation.
Lagged Effects and Policy Uncertainty
BNP Paribas analysts cautioned that while May core inflation may show the largest monthly increase since Q2 2023, even stronger data likely awaits in June and July. The bank explained that tariff-induced price hikes typically manifest with a 2-3 month lag, though uncertainty about policy implementation timing complicates the outlook.
“The Trump administration’s ‘yo-yo’ approach to tariff implementation—characterized by uncertainty about policy duration, form, and persistence—may be prompting businesses to strategically delay price increases,” wrote BNP senior US economist Andy Schneider. “This could produce not only a more chaotic and prolonged market response but also delay tariff-related inflation effects.”
Atlanta Fed President Raphael Bostic echoed these concerns, stating that frequent tariff policy changes make it harder to determine whether price increases represent one-time events or more persistent trends.
Market Pricing and Policy Implications
Financial markets currently anticipate the Federal Reserve will hold interest rates steady at its upcoming policy meeting next week. The CPI report’s findings will be closely watched for clues about whether tariff pressures are becoming embedded in broader inflation dynamics—a key consideration for monetary policymakers.
Economists will be particularly focused on:
- Whether core goods inflation shows sustained upward momentum
- Signs of tariff pass-through in service sector prices
- Any evidence of second-round effects on wage demands
The report arrives at a critical juncture as policymakers and businesses alike grapple with the evolving trade policy landscape and its inflationary consequences.
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