May CPI Report Shows Cooling Inflation, Fuels Pressure on Fed to Cut Rates

WASHINGTON, D.C. — The U.S. Bureau of Labor Statistics (BLS) released its Consumer Price Index (CPI) report for May 2025 on Wednesday, showing inflationary pressures remained subdued even after the implementation of sweeping tariffs on imported goods. Headline CPI increased by just 0.1% in May — translating to a 2.4% annual rate — while core inflation, which excludes volatile food and energy categories, also ticked up 0.1%, or 2.8% annualized.

These figures came in lower than economists had anticipated, prompting optimism in financial markets and renewed political pressure on the Federal Reserve to lower interest rates. The data marks the first CPI report since the Biden-era tariff package was replaced with the Trump administration’s renewed trade restrictions, and the minimal inflation impact surprised analysts.

Key Drivers: Shelter Up, Energy Down

The biggest contributor to the monthly increase was the shelter index, which rose 0.3% in May. Food prices also edged higher by 0.3%, both for groceries and dining out. Conversely, energy prices declined by 1.0%, driven largely by a drop in gasoline costs. Over the last 12 months, the overall energy index is down 3.5%, while food prices have increased 2.9%.

Other sectors showed mixed signals. The cost of medical care, personal care items, and household furnishings increased modestly. However, airfares, used vehicles, new vehicles, and apparel saw price declines.

Markets Respond, Politicians React

The cooler-than-expected inflation reading sent positive signals to investors at the opening of trading Wednesday. But the political response was even more swift and emphatic.

Vice President JD Vance echoed the sentiment, calling the Federal Reserve’s delay in lowering interest rates “monetary malpractice.” Both leaders have been critical of what they see as overly cautious monetary policy from the Fed, especially as inflation trends downward.

Next Steps: All Eyes on the Fed

The Federal Reserve’s next policy decision is due next week. Analysts now suggest that today’s inflation numbers may increase the likelihood of a rate cut — or at least intensify the debate within the Federal Open Market Committee (FOMC).

“If inflation is this tame even with new tariffs in place, the Fed has little reason to wait,” said David Rhoades, a senior economist at the American Policy Institute. “But they will be cautious about signaling too much, too soon.”

For now, the data offers a glimmer of relief for consumers and policy-makers alike — inflation is slowing, tariffs haven’t caused a spike, and the debate over interest rates is heating up.