Inflation Updates: U.S. Prices Edge Higher in May Amid Consumer Spending Adjustments
The latest data from the personal consumption expenditures (PCE) price index reveals a modest increase in inflation for May, indicating that price levels remain stubbornly above the Federal Reserve’s desired annual target of 2%. According to the data, prices climbed by 2.3% compared to the previous year, rising from 2.1% in April. When excluding the typically volatile categories of food and energy, the core prices increased by 2.7%, up from 2.5% in the prior month.
Potential Impacts of Tariffs
Despite the slight rise in inflation, the effects of the tariffs implemented by the Trump administration have not yet resulted in significant price hikes for consumers. Federal Reserve Chairman Jerome Powell expressed concerns earlier this week, suggesting that inflation could see a resurgence this summer as tariff costs are passed onto consumers.
In a noteworthy development, consumer spending declined by 0.1% in May, marking the first decrease since January. This downturn coincided with a reduction in incomes, as detailed in a report from the Commerce Department. Economists noted that the pullback in spending followed a period in which consumers had increased their purchasing to stock up on goods prior to the implementation of the tariffs.
Economic Analysis
Greg Wilensky, head of U.S. fixed income at Janus Henderson, remarked that while the decline in spending was unexpected, it should not overly concern analysts. He highlighted that the decrease may simply be a natural correction following an earlier surge in consumer buying ahead of tariff increases. The boost in Social Security benefits received in March and April had temporarily inflated income levels, which now may have reverted to previous figures.
Interestingly, the data on inflation suggests that the impact of President Trump’s wholesale tariffs is still relatively limited. Though prices for certain items—like toys and sporting goods—have risen, these increases are being offset by declines in the costs of new cars, airline fares, and rent, leading to a stable inflation environment overall.
Monthly Inflation Trends
On a month-over-month basis, inflation saw a modest rise of 0.1% in May compared to April, consistent with trends established in prior months. Core prices experienced a greater uptick of 0.2%, surpassing economist expectations and exceeding the previous month’s increase of 0.1%.
| Metric | April 2025 | May 2025 |
|---|---|---|
| PCE Price Index Year-over-Year | 2.1% | 2.3% |
| Core Prices Year-over-Year | 2.5% | 2.7% |
| Monthly Inflation Change | 0.1% | 0.1% |
| Core Monthly Inflation Change | 0.1% | 0.2% |
Carl Weinberg, chief economist at High Frequency Economics, echoed that current inflation reports do not pose significant concerns. However, he pointed out the unexpected decline in consumer spending may warrant closer attention as it marks the first such decrease since the onset of the pandemic. The Federal Reserve will likely consider these findings when determining future economic strategies.
