Instant Insights: CPI shows only minor tariff impacts | Insight Investment

Headline and core consumer prices rose 0.1% in May, taking CPI from 2.3% to 2.4% and keeping core CPI at 2.8%.

Tariffs continued to show a muted impact on overall inflation, but did start showing signs of impacting some minor categories. In our view, continued easing in certain services components may keep the Fed on track to cut rates later this year.

Energy and core goods prices help keep CPI contained

Energy prices fell -1% in May, driven by a -2.6% fall in gasoline and -1% fall in natural gas utility costs.

Core goods prices were flat in May, indicating muted overall pressure from tariffs. New and used vehicle prices fell -0.3% and -0.5% respectively. Elsewhere, food prices were up 0.3%, driven by both groceries and restaurant prices.

Figure 1: Energy and core goods inflation remains muted

Source: Bureau of Labor Statistics, Macrobond, Insight, June 2025

The “stickier” core services segments were mixed.

Shelter (the largest segment of the index) continued to gradually ease, slowing from 4% to 3.9% year-on-year, with rents continuing to ease gradually. Excluding shelter, headline CPI was 1.5% year-on-year, below the Fed’s target.

Elsewhere, “supercore” CPI (which additionally excludes the rental components of shelter) rose from 2.7% to 2.9% year-on-year. It was driven by some strength in public transport, albeit some areas such as airline fares (which fell -2.7% in May) remained weak.

Figure 2: “Sticky” services components continue to ease

Source: Bureau of Labor Statistics, Macrobond, Insight, June 2025

Tariffs show little overall impact, but there are signs in some categories

Core goods, the most tariff-sensitive CPI component, moved out of negative territory over the last few months, but remains muted overall. We are yet to see clear momentum on a one, three or six-month annualized basis (Figure 3). We believe it may take until at least the summer for tariffs to show a clear impact on overall figures.

Figure 3: Tariffs are not yet impacting overall inflation figures

Source: Bureau of Labor Statistics, Macrobond, Insight, June 2025

However, there were initial signs of tariff inflation within some minor categories. For example, auto parts and equipment prices rose 0.9% in May (its highest monthly gain since September) while canned fruits and vegetables were up 1.9% in May, potentially reflecting the impact of aluminum tariffs.

The Fed may still be on track to cut rates this year

We believe cyclical disinflationary momentum remains in place. 3-month annualized core CPI was 1.7%, below the Fed’s target and the slowest since July 2024. We expect this will keep the Fed on track to resume its rate-cutting cycle later this year.

We will continue to monitor tariff inflation risks, but we expect the Fed to be minded to “look through” them to the extent they deliver one-time price rises rather than a consistent inflationary impulse.