US Inflation Seen Ticking Higher As Tariff Costs Begin To Materialise
Tariff disputes begin to feed into prices, impact remains modest Shelter costs expected to ease as seasonal effects unwind Trade policy uncertainty clouds inflation outlook and Fed path
Last month’s measure of consumer price growth reflected minimal impact from tariffs, and forecasters expect only a modest upward adjustment in May.
A poll of economists predicts headline consumer price inflation rose to 2.5% y/y in May, up two-tenths of a percentage point from April. Core inflation, which strips out volatile food and energy costs, is expected to increase to 2.9% from 2.8%. On a monthly basis, headline CPI is seen printing at 0.2%, unchanged from the prior month, while core CPI is forecast at 0.3%.
Analysts at Morgan Stanley expect a modest uplift from tariffs. “Company reports and surveys suggest some firms began adjusting prices in May, while others have announced increases for the coming months. We anticipate firmer prices for apparel, new cars, and other heavily tariffed goods such as household appliances. This tariff-driven push is partly offset by another soft print for used vehicles.”
Shelter inflation seen slowing
Source: Morgan Stanley Research
Owners’ equivalent rent (OER) – a category closely watched by economists – is expected to have eased last month.
“There has been some surprising firmness in OER in recent months,” said Citi Research. “But we expect more slowing in May to 0.28% m/m, with a 0.30% increase in primary rents. Strength in March and April may reflect that OER typically slows the most during these months, implying a larger seasonal adjustment boost.”
New rent data has also pointed to a continued moderation in shelter inflation in the months ahead.
Tariff talks create uncertainty
Investors remain unsure of the ultimate economic impact of Washington’s shifting trade stance, following months of flip-flopping on tariffs.
President Donald Trump has repeatedly modified duties on various trading partners since his 2 April announcement from the White House lawn. After initially imposing tariffs, he later paused duties on around 70 countries, setting a baseline 10% rate, except for China, which was hit with a 145% levy. China retaliated with tariffs of 125% on US imports. However, a meeting on 12 May in Switzerland resulted in both sides agreeing to suspend the trade war in favour of further negotiations.
Last Thursday, Trump said he had spoken at length by phone with Chinese President Xi Jinping in an effort to “reset” relations. Talks between US and Chinese officials are now under way in London, aimed at resolving the current standoff.
The administration also confirmed last week that it has been in secret negotiations with Canada.
Meanwhile, discussions with the eurozone have so far failed to prevent a looming exchange of reciprocal tariffs on transatlantic trade.
Legal challenges to the White House’s trade strategy have emerged. On 28 May, the US Court of International Trade ruled that tariffs imposed under the International Emergency Economic Powers Act (IEEPA) were illegal. However, an appeal has allowed them to remain in place temporarily.
Fed’s policy path clouded by trade tensions
Federal Reserve officials have repeatedly said the trade dispute has complicated their assessment of the economy and the appropriate policy response.
Speaking from New York on 5 June, just before entering a pre-meeting blackout period, Fed Governor Adriana Kugler warned that rising tariffs could add to inflationary pressures in the coming months.
“While progress towards the FOMC’s 2% inflation goal has continued, we have seen an escalation in goods inflation. Data from surveys and non-traditional sources also point to emerging inflationary pressures,” she said.
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Tariff disputes begin to feed into prices, impact remains modest
Shelter costs expected to ease as seasonal effects unwind
Trade policy uncertainty clouds inflation outlook and Fed path
By Harry Daniels
LiveSquawk News
@HarryDaniels71
10 June 2025 | 18:00 GMT
Last month’s measure of consumer price growth reflected minimal impact from tariffs, and forecasters expect only a modest upward adjustment in May.
A poll of economists predicts headline consumer price inflation rose to 2.5% y/y in May, up two-tenths of a percentage point from April. Core inflation, which strips out volatile food and energy costs, is expected to increase to 2.9% from 2.8%. On a monthly basis, headline CPI is seen printing at 0.2%, unchanged from the prior month, while core CPI is forecast at 0.3%.
Analysts at Morgan Stanley expect a modest uplift from tariffs. “Company reports and surveys suggest some firms began adjusting prices in May, while others have announced increases for the coming months. We anticipate firmer prices for apparel, new cars, and other heavily tariffed goods such as household appliances. This tariff-driven push is partly offset by another soft print for used vehicles.”
Owners’ equivalent rent (OER) – a category closely watched by economists – is expected to have eased last month.
“There has been some surprising firmness in OER in recent months,” said Citi Research. “But we expect more slowing in May to 0.28% m/m, with a 0.30% increase in primary rents. Strength in March and April may reflect that OER typically slows the most during these months, implying a larger seasonal adjustment boost.”
New rent data has also pointed to a continued moderation in shelter inflation in the months ahead.
Investors remain unsure of the ultimate economic impact of Washington’s shifting trade stance, following months of flip-flopping on tariffs.
President Donald Trump has repeatedly modified duties on various trading partners since his 2 April announcement from the White House lawn. After initially imposing tariffs, he later paused duties on around 70 countries, setting a baseline 10% rate, except for China, which was hit with a 145% levy. China retaliated with tariffs of 125% on US imports. However, a meeting on 12 May in Switzerland resulted in both sides agreeing to suspend the trade war in favour of further negotiations.
Last Thursday, Trump said he had spoken at length by phone with Chinese President Xi Jinping in an effort to “reset” relations. Talks between US and Chinese officials are now under way in London, aimed at resolving the current standoff.
The administration also confirmed last week that it has been in secret negotiations with Canada.
Meanwhile, discussions with the eurozone have so far failed to prevent a looming exchange of reciprocal tariffs on transatlantic trade.
Legal challenges to the White House’s trade strategy have emerged. On 28 May, the US Court of International Trade ruled that tariffs imposed under the International Emergency Economic Powers Act (IEEPA) were illegal. However, an appeal has allowed them to remain in place temporarily.
Federal Reserve officials have repeatedly said the trade dispute has complicated their assessment of the economy and the appropriate policy response.
Speaking from New York on 5 June, just before entering a pre-meeting blackout period, Fed Governor Adriana Kugler warned that rising tariffs could add to inflationary pressures in the coming months.
“While progress towards the FOMC’s 2% inflation goal has continued, we have seen an escalation in goods inflation. Data from surveys and non-traditional sources also point to emerging inflationary pressures,” she said.