U.S. Consumer Prices Inch Up 0.1% In May, Slightly Less Than Expected

The May CPI report indicated a slight 0.1% increase in consumer prices, below the anticipated 0.2% rise, while the annual inflation rate edged up to 2.4% from 2.3%. Core CPI also rose by a modest 0.1%, with the annual rate remaining steady at 2.8%, both figures slightly under expectations; shelter costs continue to be a primary driver of inflation. Comerica Wealth Management's CIO suggests tariffs have not yet impacted consumer prices significantly, but their eventual pass-through remains a concern.

Analysis

The May Consumer Price Index (CPI) data revealed a marginal 0.1% month-over-month increase, falling short of the anticipated 0.2% rise and decelerating from April's 0.2% gain. Concurrently, the annual rate of consumer price inflation edged up to 2.4% from 2.3%, though this was also below the 2.5% consensus expectation. Core CPI, which excludes food and energy, similarly rose by a modest 0.1% in May, against forecasts of 0.2%, while the annual core inflation rate remained unchanged at 2.8%, contrary to expectations of an acceleration to 2.9%. Persistent shelter costs, up 0.3% for the second consecutive month, continued to be a significant contributor to inflationary pressures, alongside a 0.3% increase in food prices. These increases were partly offset by a 1.0% decline in energy prices due to lower gasoline costs, and price decreases in categories such as airline fares, used and new vehicles, and apparel. Eric Teal, Chief Investment Officer for Comerica Wealth Management, noted that tariffs have not yet translated into higher consumer prices, but cautioned that a significant portion is likely to be passed on to consumers eventually, depending on absorption capacities of businesses. The market now awaits the May producer price inflation report for further insight into price trends.

Key Decisions for Investors

• Consider that the slightly lower-than-expected CPI figures may provide some near-term relief from aggressive inflation concerns, though the persistence of core inflation at 2.8% annually warrants continued monitoring.
• Evaluate positions sensitive to consumer discretionary spending and input costs, factoring in the potential for future pass-through of tariff-related expenses, as highlighted by Comerica Wealth Management.
• Closely observe shelter cost trends, as they remain a key driver of current inflation, and monitor the upcoming Producer Price Index (PPI) data for May to gain a more comprehensive view of inflationary pressures within the economy.