The Consumer Price Index inflation report for May will be released on June 11. Inflation nowcasting from the Atlanta Federal Reserve estimates 0.12% headline monthly inflation for May and 0.23% when food and energy prices are removed. That would be similar to the 0.2% monthly CPI price increase reported in April for both figures.
However, these nowcasts are primarily informed by energy price trends and historical prices. It’s possible that any potential impact from tariffs is missing. Still, many large firms, whether they’re retailers or car manufacturers, have not yet adjusted pricing in response to tariffs. May’s CPI data may not pick up a material tariff impact.
The Impact Of Tariffs On Inflation
Ten percent tariffs on most imports went into effect on April 5 with higher tariffs for China and earlier tariffs for steel and aluminum exports. Of course, tariff policy is rapidly evolving.
Analysis by NBC News’ “Today” has shown that most large retailers have not increased pricing yet in reaction to tariffs, though several plan to in June or July. This may mean any impact of tariffs will not be seen in May’s CPI report and even June’s report may not measure the full impact.
May’s CPI data might capture some impact from tariffs on used car pricing. The CPI report for April reported flat pricing for new vehicles and falling prices for used cars and trucks. However, industry trackers such as CARFAX are reporting robust pricing on used cars into May. There are also reports that car buyers rushed to purchase vehicles before tariffs went into effect.
Aside from Ferrari, which has raised pricing 10%, most car manufacturers have held pricing for now or even extended certain discounts more broadly. However, some overseas manufacturers have paused U.S. shipments, according to analysis from Car and Driver. That may mean that the impact of tariffs on new cars is muted in May’s CPI report. However, pricing for used vehicles may be stronger.
Other categories could show a similar picture as corporations take some time to measure their reaction to tariffs and potentially adjust pricing. However, economists will watch the general trend in goods pricing, which is more sensitive to tariffs, as compared to services where imports are typically less of a cost driver. Also, how smaller businesses will adjust pricing in response to tariffs is less clear and May’s CPI report could be informative there.
Home Price Trends
Despite the attention on tariffs, housing costs make up a large portion of price trends in the CPI report. Shelter costs represent just over one third of the weighting of the overall CPI price series. March and April’s CPI reports suggested that shelter costs may be starting to cool down. For example, Zillow’s industry forcast sees home prices falling 1.4% in 2025.
However, Zillow also forecasts rents to rise over 3% in 2025. As such, though home prices may cool in upcoming CPI reports, it remains to be seen whether the shelter costs tracked by the CPI decline. That’s in part because the index aims to capture a broader estimate of the ongoing cost of homeownership, rather than simply the standalone home purchase. Given the high weighting to the category, May’s CPI report may be shaped as much by trends in shelter costs as the impact of tariffs.
The Fed’s Reaction
The Federal Open Market Committee will set interest rates on June 18 after the CPI report. Fixed income markets expect interest rates will be held steady at their current level of 4.25% to 4.5%, according to the CME FedWatch Tool.
Generally, the FOMC has signaled it intends to watch the economic data play out before making a decision on interest rates. There’s some expectation that prices may rise and growth may slow, although markets do expect the FOMC to cut interest rates moderately later this year.
May’s CPI report may show that larger firms, like the Fed are taking a wait-and-see approach for now in response to tariffs. However, it is possible that price increases are noticeable in upcoming CPI reports for the months of June and July, especially if recent statements from larger corporations are any guide.
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