Tariff-Fueled Inflation: May’s CPI Poised to Reaccelerate

The U.S. Consumer Price Index (CPI) for May 2025 is widely expected to show a modest uptick in headline inflation after three consecutive months of cooling, driven in large part by renewed tariff pressures on consumer goods. Economists surveyed anticipate a 2.4 percent year-over-year increase in the headline CPI—up from 2.3 percent in April—while “core” inflation, which strips out volatile food and energy components, is forecast to climb from 2.8 percent to 2.9 percent. This anticipated rise underscores the lingering impact of tariffs on a broad range of goods, from automobiles to household appliances

Much of the expected acceleration can be traced to so-called “core goods” inflation, a sub-component that had been steadily easing until April’s unexpected 0.1 percent rebound. Tariffs imposed on imported items such as new vehicles, apparel, and electronics have gradually filtered through supply chains, pressuring retail prices and consumer spending power. Analysts warn that persistent upside in core goods could dampen real incomes and consumer sentiment if policymakers fail to address tariff uncertainties

Despite this tariff-driven price pressure, the Federal Reserve is not expected to change its policy stance immediately following the release. Fed officials have repeatedly indicated a willingness to look through temporary spikes attributable to trade measures. However, should core inflation remain stubbornly elevated above the 2 percent target, the central bank may delay any prospective rate cuts, prolonging the current restrictive interest rate environment. Market participants will scrutinize both the headline and core readings for signals on the timing of future policy adjustments

Looking beyond the next policy meeting, economists caution that a sustained tariff regime could complicate the Fed’s forward guidance, potentially entrenching higher inflation expectations among consumers and businesses. A New York Fed survey in May revealed that one-year inflation expectations fell by 0.4 percentage points to 3.2 percent, buoyed by a temporary U.S.-China trade détente. Any reversal of that truce, however, risks rekindling inflation jitters and unsettling financial markets.