June CPI Report: Inflation Falls Faster Than Forecast—Here’s How It Could Boost Your Buying Power

U.S. inflation cooled only slightly in May, according to the Consumer Price Index (CPI) report released Wednesday by the Bureau of Labor Statistics (BLS), adding nuance to the economic outlook as the Federal Reserve meets next week. Headline CPI rose 0.1 percent on a seasonally adjusted basis from April, down from the prior month’s 0.2 percent increase. On a year-over-year basis, prices climbed 2.4 percent, edging higher from April’s 2.3 percent pace and marking the first annual acceleration since February. Core CPI—which strips out volatile food and energy categories—advanced 0.3 percent for the month, the largest gain since January, and 2.9 percent over the past 12 months, up from 2.8 percent in April. Shelter once again did the heaviest lifting, contributing more than two-thirds of the monthly increase. Owners’ equivalent rent jumped 0.4 percent, while actual rents climbed 0.5 percent. Food prices were unchanged overall, though restaurant meals ticked 0.3 percent higher. Energy prices slipped 0.2 percent, as a 3.1 percent drop in gasoline offset a 1.4 percent rise in electricity. New-vehicle prices fell 0.1 percent, their third decline in four months, while used cars dropped 1.1 percent. Tariffs complicate the inflation picture May’s report is the first to fully capture the fresh round of tariffs on Chinese electric vehicles and key industrial inputs announced earlier this spring. Economists say the levies have begun to filter into durable goods prices, though the overall effect remains modest for now. BLS noted that household appliance prices climbed 0.8 percent after three straight monthly declines, while furniture rose 0.6 percent. What it means for the Fed The data land just one week before the Federal Open Market Committee publishes its June policy decision and updated economic projections. Traders in federal-funds futures are now pricing in roughly a 40 percent chance of the first rate cut arriving in September, down from 55 percent prior to the CPI print, according to CME’s FedWatch tool. Most Fed officials have signaled that they want “greater confidence” inflation is returning to the 2 percent target before easing monetary policy. Today’s stickier-than-hoped-for core reading, combined with resilient labor-market data, gives policymakers incentive to keep rates at their 23-year high of 5.25 percent to 5.50 percent for at least another meeting. Market reaction Stocks opened lower, with the S&P 500 slipping 0.4 percent and rate-sensitive tech names leading declines. The 10-year Treasury yield initially spiked to 4.49 percent—its highest in two weeks—before settling near 4.45 percent as investors parsed the details. The dollar strengthened 0.3 percent against a basket of major currencies. Consumers feel the pinch, but wages help While inflation has cooled markedly from the 9.1 percent peak logged in mid-2022, price levels remain well above pre-pandemic norms. The average household is paying roughly $240 more per month for the same basket of goods and services than it did two years ago, according to Oxford Economics estimates. Still, real average hourly earnings rose 0.2 percent in May, BLS data show, marking a fourth consecutive monthly gain and providing a modest buffer for consumers. Retail sales figures due Friday will indicate whether stronger paychecks are translating into sustained spending momentum. Looking ahead Economists expect headline CPI to moderate in June as favorable base effects kick in and gasoline prices stabilize. However, sticky shelter and services inflation could keep the core gauge near 3 percent through late summer. Supply-chain pressures from higher tariffs present an upside risk, while a cooling labor market and slower wage growth could exert downward pressure later in the year. For now, the May CPI report underscores a simple reality: inflation’s last mile back to 2 percent is proving harder than the first few, forcing the Fed and financial markets to recalibrate expectations yet again.