Markets were treated to a positive May inflation report, as inflation was lower than expected despite fears that US tariffs would boost inflation.

US CPI Inches Higher to 2.4% Year-On-Year

The US consumer price index (CPI) rose 2.4% year-on year in May, up from 2.3% in April. The CPI reading marked the first acceleration in four months but importantly, was below the market estimate of 2.5%. Energy costs were down sharply while food and shelter prices were higher. Monthly, CPI rose 0.1%, down from 0.2% in April and below the market estimate of 0.2%.

Core CPI, which excludes food and energy and is considered a better gauge of inflation trends, remained unchanged at 2.8% year-on-year for a third straight month and holding at its lowest level since 2021. Monthly, the core rate rose just 0.1%, up from 0.2% and below the market estimate of 0.2%.

Perhaps the biggest surprise from the inflation report was that President Trump’s tariffs, many of which took effect in April, did not have a more significant impact on inflation. There had been fears that the tariffs would significantly raise prices on US imports and would cause a price shock, but fortunately those fears proved groundless. While today’s inflation report is reassuring, it’s too early to celebrate as it could be several more months before the tariffs make their way into the CPI data.

US inflation will be sensitive to developments in the global trade arena. President Trump has announced that the US and China have reached a trade deal which includes tariffs of 55% on Chinese products. If the deal is finalized, these tariffs will make Chinese products more expensive for US consumers and will likely be reflected in US inflation data in the coming months.

US Dollar Lower, Stock Market Quiet Inflation Report

The US dollar has lost ground against the British pound and the Euro on Wednesday in the aftermath of today’s lower-than-expected inflation report. The EUR/USD currency pair is trading at 1.1458, up 0.34%. The GBP/USD currency pair rose as much as 0.57% earlier but has since given up most of those gains.

The US stock market has only been open for a short time and investors have been slow to react to today’s lower-than-expected inflation report.

The S&P 500 Index is almost unchanged, up 2.3 points (0.062%) and is currently trading at 6,043.

The Nasdaq 100 Index has posted small gains of 34.3 points (0.15%) and is currently trading at 22,061.

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