That’s down from the previous month. In May, the Consumer Price Index (CPI) climbed by just 0.1% over April. This increase represents a 2.4% increase from the same time last year. Taken together, this data indicates inflationary pressures are strong and steady despite continued tariff escalations and trade war turmoil. In May, the core CPI, which strips out volatile food and energy prices, went up just 0.1%. The past three months annualized rate is only 1.7%, representing the slowest core inflation over a 3-month span since early 2021.
This most recent CPI report lands right as members of the Federal Open Market Committee (FOMC) begin deliberating their next monetary policy move. Economists are seeing this report as one piece of unequivocally good news for the FOMC, especially given the backdrop of recent tariff hikes. The federal government imposed these tariffs especially between March and May. Taken together, we should thus expect them to weigh on consumer price inflation in the ensuing quarters. Some analysts caution that the full effects of these tariff changes on output, hiring, and pricing may take time to materialize.
The acceleration in core CPI was a result of softer-than-expected prices in core goods and core services. This is a promising trend that shows some inflationary pressures are easing, which may help guide the FOMC’s decision-making process on interest rates.
Beyond the implications derived from last week’s CPI figures, the recent trade policy shifts on the international stage have greatly changed the market. The unexpected consequence of the recent US-China trade agreement was a weakening of the U.S. dollar. This change would affect major currency pairs such as EUR/USD and GBP/USD. That dollar value has recently dropped following the release of softer inflation data. This trend typically injects significant upside momentum in the precious metal markets.
Tariffs are increasing, and that’s making a difference. Indeed, projections show core CPI rising slightly above 3% in coming quarters. Tariffs are a huge concern. Rising costs due to tariffs are the No. Over time, these increased costs will be passed on to consumers and raise overall price levels.
“Today’s CPI report is good news for the FOMC.” – Source unspecified
Market participants are closely watching how these inflation trends will influence not only monetary policy but broader economic conditions. This very modest CPI increase provides the FOMC sufficient cover. They can hold onto their existing guidance without having to feel rushed into increasing the federal funds rate in the near-term.
Even some supporters of the tariffs believe that the last wave of tariff hikes likely won’t have an immediate impact on consumer prices. They concede the long-term impact may be profound. The relationship between tariffs and inflation continues to be an important consideration as policymakers look at their approaches in the future.
The cash, trading, credit and derivatives markets have all been reacting to these moves as well. The U.S. dollar’s recent swings, particularly a drop in recent days on the back of softer inflation prints. This change has catalyzed moves in the precious metal markets. Investors flee to gold in times of currency turmoil, which has helped boost prices of precious metals recently.