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 headline and adjusted for food and energy..
However, these nowcasts are primarily informed by energy price trends and historical prices, so its possible that any impact from tariffs is missed. Still, many large firms whether retailers or car manufactures have not yet adjusted pricing in response to tariffs, so May’s data may not pick up a material tariff impact.
The Impact Of Tariffs On Inflation
10% 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 Today has shown that most large retailers have not increased pricing yet in reaction to tariffs, though several plan to in June or July. That may mean that any impact of tariffs may 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 of car buyers rushing to purchase cars before tariffs were in effect.
However, 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.
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 suggest that shelter costs may be starting to soften. For example, Zillow’s industry forcast sees home prices falling 1.4% in 2025.
However, Zillow also forecasts rents to rise over 3%. As such, though home prices may cool in upcoming CPI reports, it remains to be seen whether they decline, in part because the CPI index aims to capture a broader estimate of the ongoing cost of home ownership, rather than simply the standalone home purchase. As such April’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 that interest rates will be held steady at their current level of 4.25% to 4.5%.
Generally, the FOMC has signaled it intends to what the economic data play out before making a decision on interest rates with some expectation that prices may rise and growth may slow. Although, markets to expect the FOMC to cut interest rates moderately later this year.
May’s CPI report may show that firms, like the Fed are, for now, taking a wait and see approach in response to tariffs, though price increases may be noticeable in CPI report for June and July if statements from larger corporations are any guide.
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