United States: Core Inflation Holds Steady

Despite ongoing concerns surrounding tariffs imposed by the Trump administration, inflation has yet to show clear signs of being impacted by protectionist trade policies. Both households and businesses remain wary of potential price increases, but for now, CPI growth appears to be progressing normally. While the annual change in headline inflation accelerated in May—its first uptick since January—this was largely due to base effects stemming from a temporary dip in price growth in May 2024.

Energy prices declined on the month, thanks in part to lower gasoline prices. In contrast, food prices rose 0.3%, marking a reversal from the decline recorded the previous month.

Excluding food and energy, goods prices were flat in May. This is where the absence of tariff-related effects is most evident. In fact, prices for new and used vehicles as well as clothing posted monthly declines. That said, some categories that could be sensitive to tariffs did see notable price increases, including household appliances (+4.3%), medical goods (+0.6%), and toys (+2.2%).

On the services side (excluding energy), price growth moderated slightly in May compared to April. Hotel rates and airfares continued to decline, possibly reflecting softer demand from the tourism sector.

It remains to be seen whether trade policy will exert more upward pressure on CPI in the coming months. The back-and-forth on tariff implementation—particularly between the United States and China—has left businesses uncertain about whether to adjust prices now or wait for more clarity. As we noted at the onset of the trade war, the impact of tariffs tends to materialize gradually, but we may begin to see more tangible effects as we move into the summer.

Monthly price movements remain relatively modest, although annual inflation rates are still running above the Federal Reserve’s 2% target. The key question now is whether trade policy will lead to stronger inflationary pressures. Fed officials are likely to remain in wait-and-see mode through the end of the summer.