By AP Economics Writer Christopher Al Gerber
WASHINGTON (AP) – Major inflation gauges in May have risen stubbornly in May with the latest indication that Americans also cut their spending last month.
Friday said Friday that prices rose 2.3% in May compared to a year ago, compared to just 2.1% in April. Excluding the volatile food and energy categories, core prices rose 2.7% from the previous year, up from 2.6% in the previous month. Both numbers conservatively surpass the Federal Reserve’s 2% target. The Fed usually tracks core inflation as it provides a better guide to where inflation is heading.
At the same time, Americans cut their spending for the first time since January. This is because overall spending fell by 0.1%. Revenue dropped sharply at 0.4%. Both numbers were skewed by a one-off change. Expenses on cars plummeted, lowering overall spending. Because Americans moved their vehicles more quickly in the spring ahead of tariffs.
And revenues fell after one-off adjustments to Social Security benefits boosted payments in March and April. Social Security payments have been raised for some retirees who worked for state and local governments.
File – On Thursday, April 3, 2025, there is a grocery-filled shopping cart in the aisle of an Asian grocery store in Roland Heights, California (AP Photo/Jae C. Hong, File)
File – This is a ground beef cooler located in the Costco warehouse in Pittsburgh on Wednesday, February 26th, 2025 (AP Photo/Gene J. Puskar, File)
File – Eggs are sitting in a container in a grocery shopping cart at a Grocery Store in Wyndham, Maine on Monday, January 27th, 2025. (AP Photo/Robert F. Bukati, File)
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File – On Thursday, April 3, 2025, there is a grocery-filled shopping cart in the aisle of an Asian grocery store in Roland Heights, California (AP Photo/Jae C. Hong, File)
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Still, the data suggests that growth is cooling down as Americans keep their spending down. This is because President Donald Trump’s tariffs have increased the costs of some products, such as appliances, tools and audio equipment. Also, consumer sentiment has dropped sharply this year, sometimes due to the unfolding of obligation. And while unemployment rates remained low, people who were not at work who were not struggling to do their jobs were unable to find new jobs.
Consumer spending has risen by just 0.5% in the first three months of the year and slowed in the first two months of the second quarter.
“Consumers aren’t strong enough to handle them, so they spend less on recreation, travel, hotels and things that type of thing,” says Luke Tilly, chief economist at Wilmington Trust.
Airfares, restaurant meals and hotel spending all fell last month, according to a report on Friday.
At the same time, the numbers suggest that President Donald Trump’s broad tariffs still have a small impact on overall prices. The increased costs for some products are partially offset by declining prices such as new cars, airline fares and apartment rentals.
In fact, inflation was largely tamed. Prices rose just 0.1% between April and May, according to the Commerce Department. This is the same as the previous month. Core prices rose 0.2% in May. This exceeded 0.1% last month than economists expected. Gas prices fell 2.6% from April to May.
Economists point out several reasons why Trump’s tariffs have not yet accelerated inflation, as many analysts have expected. Like American consumers, businesses imported billions of dollars of goods in the spring before their duties were completely affected, and many of the items currently on store shelves were imported without paying higher taxes.
There are early signs that it is beginning to change.
Nike announced this week that it expects US tariffs to cost $1 billion this year. We will implement a “surgical” price increase in autumn. He is not the first retailer to warn students of price increases when they return to school.
Walmart said last month that customers will start to earn higher prices this month as shopping returns to schools rises to a high degree.
Also, much of the US imports consists of raw materials and parts used to make goods in the US. It can take some time for those high input costs to appear in consumer prices. JP Morgan economists argue that many companies are absorbing tariff costs for now. This will reduce profit margins and give you a greater emphasis on employment.
Cooling inflation has put a more spotlight on the Federal Reserve and its chairman, Jerome Powell. The Fed increased short-term interest rates in 2022 and 2023, slowing the economy and combat inflation, jumping to four-year highs nearly three years ago. As prices have almost returned to Fed targets due to rising prices, some economists and some Fed officials say central banks can return to levels that do not slow or stimulate growth.
Trump has also repeatedly attached the Fed to avoid cutting interest rates, calling Powell “Numskull” and “fools.”
But Powell said in Congress earlier this week that the Fed wants to see how inflation and the economy evolve before cutting interest rates. Most other Fed policymakers have expressed similar views.
Original issue: June 27, 2025 9:27am EDT
