Wall Street Journal: U.S. Inflation Data Underwhelms, Suggesting Potential Rate Reductions Ahead

According to The Wall Street Journal, U.S. government inflation data for May came in below expectations, increasing the likelihood that the Federal Reserve may consider interest rate cuts in the coming months.

Official data from the Bureau of Labor Statistics showed that the Consumer Price Index (CPI) rose by only 0.1% in May compared to April—lower than the 0.2% increase forecasted by economists. On a year-over-year basis, inflation reached 2.4%, aligning with estimates and remaining close to its four-year low of 2.3% recorded in April.

The report noted that recent tariffs were expected to begin driving up the prices of certain goods—particularly vehicles and clothing. However, the data showed no such impact; in fact, prices for these goods declined. This raises questions about companies’ ability to pass rising costs on to consumers.

The paper cited several experts suggesting that weak demand may be preventing firms from raising prices, despite higher input costs. Others attributed the muted impact to companies stockpiling goods ahead of tariff implementation or to data collection lags in monthly price surveys.

Veronica Clark, senior economist at Citigroup, stated that if demand remains weak, the effects of the tariffs may not materialize significantly, limiting companies’ pricing power. She added, “If we don’t see the tariff impact by late summer or early fall, the economic picture could shift dramatically.”

While certain tariff-related goods such as appliances and auto parts did see price increases, the overall inflation rate was kept in check by falling energy prices.

Additionally, economists noted that shipments exempted from tariffs or en route to the U.S. before the measures took effect may have softened the immediate price impact.

Jonathan Pingle, chief U.S. economist at UBS, remarked, “Most of the effects of the tariffs won’t be visible until the summer,” adding that their absence so far “doesn’t mean they won’t appear later.”

The Journal concluded that the Federal Reserve remains closely focused on inflation developments, especially after inflation exceeded the Fed’s 2% target for several consecutive years. While the central bank is expected to keep interest rates steady at its upcoming meeting, the latest inflation data may prompt a reassessment of its outlook and policy options—particularly if economic growth continues to slow and signs of labor market weakness emerge this summer.