Key Points
- May's Consumer Price Index (CPI) is expected to show a slight increase in headline inflation to 2.4% from 2.3% in April, with core CPI (excluding food and energy) rising to 2.9% from 2.8%.
- The CPI report, due Wednesday, comes amid scrutiny of President Trump's tariffs, with a 10% baseline duty for most countries and higher tariffs on China, Mexico, and Canada still in effect.
- Economists, including those at Wells Fargo and Goldman Sachs, anticipate modest inflation rises due to tariffs, with potential for stronger impacts in the coming months.
- Uncertainty around the timing and longevity of tariff policies may delay price increases, as firms adopt a cautious approach, according to BNP Paribas.
- Markets expect the Federal Reserve to maintain steady interest rates at its upcoming policy meeting despite inflation concerns.
Summary
May's Consumer Price Index (CPI) report, set for release on Wednesday, is anticipated to reflect a slight uptick in inflation, with headline inflation rising to 2.4% from 2.3% in April, and core CPI (excluding food and energy) increasing to 2.9% from 2.8%. This data comes under intense scrutiny as investors assess the impact of President Trump’s tariffs, implemented after his "Liberation Day" announcements. While many reciprocal tariffs have been paused, a 10% baseline duty remains for most countries, with higher rates on Chinese goods (around 30%) and specific tariffs on Mexico, Canada, steel, aluminum, and autos. Economists from Wells Fargo and Goldman Sachs predict a modest inflation rise due to higher goods prices, though significant jumps are not expected immediately. However, uncertainty persists regarding the timing and extent of tariff-induced price increases, with firms potentially delaying adjustments due to the unpredictable nature of tariff policies, as noted by BNP Paribas. Stronger inflation readings are projected for June and July, and ongoing tariff fluctuations complicate predictions, according to Atlanta Fed president Raphael Bostic. Despite these concerns, markets anticipate the Federal Reserve will hold interest rates steady at its next meeting.