May’s inflation report surprised many by showing only modest price increases: the Consumer Price Index (CPI) rose 0.1% from the previous month and remained below 2.5% on a 12‑month basis.
Certain categories such as automobiles and clothing actually registered price declines, even in the face of newly announced tariffs. Economists point to a few factors behind this “missing inflation”: businesses appear to have front‑loaded imports and stockpiled goods before tariffs took effect, and consumer demand remains soft in several sectors, limiting firms’ ability to raise prices.
That said, the lull in inflation may be temporary. Producer and input costs have been climbing, and at some point companies tend to pass those higher costs on to consumers. While markets have been hopeful that the Federal Reserve will begin cutting interest rates, policymakers are likely to remain cautious. Having been surprised by persistent inflation in the past, the Fed may prefer to keep policy restrictive through 2025 rather than risk repeating earlier mistakes that followed premature easing.