U.S. consumer prices rise by 2.4% in May, slower than anticipated

Investing.com - U.S. consumer prices rose at a slower-than-anticipated annualized pace in May, even as concerns swirled around the potential impact of President Donald Trump’s aggressive tariff agenda on inflation.

The Labor Department’s consumer price index increased by 2.4% year-over-year last month, accelerating from 2.3% in April but cooler than expectations of 2.5%.

On a monthly basis, the measure eased to 0.1%. Economists had projected that the gauge would match April’s reading of 0.2%.

An uptick in shelter costs underpinned much of May’s increase, although this was offset by falling gasoline prices that dragged energy expenses down 1%, the Bureau of Labor Statistics said in a statement.

Stripping out volatile items like fuel and food, so-called "core" CPI equaled April’s rate of 2.8%, while it edged down month-on-month to 0.1%. Both were slower than estimated.

Heading into the release on Wednesday, many investors had flagged worries that Trump’s sweeping tariffs could drive up inflationary pressures and ultimately weigh on broader economic activity.

Despite Trump’s decision to delay elevated "reciprocal" levies on most countries, universal 10% duties, as well as heightened trade taxes on items like steel, aluminum and autos, remain in effect. Meanwhile, analysts have noted that the effective U.S. tariff rate has risen sharply since Trump’s return to office in January.

The potential inflationary impact of the tariffs has presented Federal Reserve officials with a dilemma: Raising interest rates could combat inflation, but possibly at the expense of broadly resilient economic activity. Meanwhile, Trump has been urging Fed Chair Jerome Powell to slash rates quickly, casting some doubt over the independence of the Fed.

With this uncertainty in mind, the Fed has recently opted to leave rates on hold at a range of 4.25% to 4.5% and adopt a wait-and-see approach to further rate cuts. Markets are now not expecting the central bank to resume its cycle of borrowing cost reductions until September at the earliest.

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