US core inflation sees moderate uptick in May but continues to remain below expectation as Trump tariffs affect economy

Underlying US inflation ticked up in May but was lower than the forecast, data showed on Wednesday. This is the fourth straight month that US core inflation has come out to be lower than expected even as President Donald Trump's sweeping new tariffs began to shake up the world's biggest economy.

The consumer price index, excluding the food and energy categories that can often be volatile, increased 0.1 per cent from April, according to Bureau of Labor Statistics data out Wednesday. From a year ago, it rose 2.8 per cent, as per data reviewed by Bloomberg.

Between April and May, CPI was up 0.1 per cent, cooling from the rate in the prior month.

Goods prices remained unchanged, excluding food and energy commodities, the data showed. Prices of both new and used cars declined, and so did apparel. Several services, such as airline fares and hotel rooms, also dropped in price.

Meanwhile, services prices minus energy rose 0.2 per cent, a deceleration from the prior month and reflecting a decline in airfares and hotel stays.

Grocery prices rose 0.3 per cent from April to May, and are up 2.2 per cent in the past year. Fruits and vegetables, breakfast cereals, and frozen foods all rose in price. Egg costs fell 2.7 per cent, their second straight drop though they are still more than 40 per cent more expensive than a year ago.

However, the figures suggest that US inflation remains well above the Federal Reserve's target of 2 per cent, which makes it less likely that the central bank will cut its key short-term interest rate.

Consumers yet to feel tariff heat

While scattered evidences showed the impact of Donald Trump's tariffs announced in April, consumers have not yet felt the heat of the same all over.

This is perhaps because the most punitive tariffs announced by Trump are still on pause, or because companies are till now absorbing the costs.

However, if higher tariffs set in, shielding consumers from those costs will become more difficult, which is partly why economists expect firms to raise prices more meaningfully in the coming months, as per Bloomberg.

Nearly all economists expect Trump's duties will make many things more expensive in the second half of this year, including cars and groceries, though by how much is still uncertain.