U.S. inflation picked up a bit last month as higher prices for groceries and some imported goods were largely offset by cheaper gas, travel services, and rents.
Consumer prices increased 2.4% in May compared with a year ago, according to a Labor Department report released Wednesday. That is up from a 2.3% yearly increase in April. Excluding the volatile food and energy categories, core prices rose 2.8% for the third straight month. Economists pay close attention to core prices because they generally provide a better sense of where inflation is headed.
The cost of groceries, toys and games, and large appliances rose, which could reflect the impact of President Donald Trump’s tariffs. Yet the price of new and used cars, clothes, airfares, and hotel rooms all dropped from April to May.
Every month, overall prices ticked up just 0.1% from April to May, down from 0.2% the previous month, with inflationary pressures appearing muted. Core prices also dropped to 0.1% from 0.2%.
The data showed that Trump’s tariffs haven’t yet pushed overall prices higher, suggesting many companies may be absorbing the cost of the higher duties for now. Yet many economists expect the import taxes to modestly increase inflation in the second half of the year. Companies ranging from Walmart to Lululemon to J.M. Smucker have said they will raise prices in the coming months to offset the impact of tariffs.
“You can point to seeing tariffs in this report, but the more important message is that you’re seeing inflation soften enough elsewhere that overall, price pressures continue to subside for the U.S. consumer,” Sarah House, an economist at Wells Fargo, said.
But offsetting price drops for things like cars and air fares may not continue at the same pace for the rest of this year, she said.
“I don’t think this report signals an all clear -- that tariffs are not going to be a concern for the inflation picture,” House said.
The figures also show that core inflation remains stubbornly above the Federal Reserve’s 2% target, which makes it less likely that the central bank will cut its key short-term interest rate. Trump has repeatedly urged the central bank to reduce borrowing costs.
Grocery prices rose 0.3% from April to May, and are up 2.2% in the past year. Fruits and vegetables, breakfast cereals, and frozen foods all rose last month. Egg costs fell 2.7%, though they are still more than 40% more expensive than a year ago. Gas prices dropped 2.6% last month.
Marilyn Kirschner, editor of an online fashion magazine, was shopping for toothpaste Tuesday at Gristedes in lower Manhattan. She’s surprised every day by high prices for items like Swiffer refills, which she said recently cost her $30.
“You go into the store and it’s like, wait a minute, how can this be?” Kirschner said. “Every single thing. It’s sticker shock at this point. It’s scary, with rent and everything.”
Peter Manning, a software engineer, bought a loaf of French bread and milk at Gristedes in his lower Manhattan neighborhood. He’s been noticing high yogurt prices, at $8 or $9, and butter for $11.
“When we go out to the suburbs, we shop there, because it’s a little cheaper,” Manning said. “I’m sure everything’s going to probably go up. It takes a long time ... I tell my friends, this economy, we’re watching a slow-motion train wreck.”
Last week, the Labor Department’s Bureau of Labor Statistics, which compiles inflation data, said it is reducing the amount of data it collects for each inflation report. Economists have expressed concern about the cutback. Still, less data could make inflation reports more volatile.
Nearly all economists expect Trump’s duties will make many things more expensive this year, including cars and groceries, though by how much is still uncertain. Trump said Wednesday that the U.S. will keep its 30% tariff on all goods from China, first announced last month. When added to previous tariffs, Chinese goods will face duties of about 55%. Trump has also imposed a 10% baseline tariff on imported goods from every other country, and 50% import taxes on steel and aluminum.
There are several reasons it can take months for the tariffs to be felt by consumers.
To begin with, many companies tried to beat the clock by bringing in foreign goods before Trump’s tariffs took effect, producing a flood of imports in March. They have stockpiled goods that weren’t hit by tariffs in warehouses, delaying price increases for customers.
Some also held off on hiking prices during the chaos of April and May, when Trump announced sweeping tariffs on imports from nearly 60 countries, only to put them on hold a week later.
Kim Vaccarella, founder and CEO of Bogg Bag, a line of sturdy, washable handbags, said she had resisted raising prices even though all her products are manufactured in China. She stocked up on inventory in the spring, before the tariffs went into effect, and stopped importing when tariffs on China were at 145%.
The Seacaucus, N.J., company employs about 80 people and did $100 million in business in 2024.
Vaccarella plans to raise prices in July, with the original Bogg bag going from $90 to $95 and the “Baby” bag increasing from $70 to $75.
The increase isn’t enough to fully cover the higher tariffs. She hopes not to raise prices any further, but said that it’s hard to predict.
“We’ve forecasted, and reforecasted, and reforecasted again,” she said. “We just need to get a handle of what will ultimately be the price we have to pay.”
Bryan Eshelman, a partner and managing director at consulting firm AlixPartners, said higher prices “are coming.”
Eshelman says Americans will start feeling the impact in July, and predicts prices for back-to-school items like clothing and backpacks could go up anywhere from 5% to 15%.
The impact is just starting to hit U.S. food producers, some of which have already passed along higher prices to customers. The J.M. Smucker Co., which raised the price for its coffee in May, said Tuesday that it will raise those prices again in August.
CEO Mark Smucker said that “the current US tariff impact on green coffee is our largest exposure.” The company’s shares tumbled 17% on Tuesday.
J.M. Smucker imports 500 million pounds of green coffee annually, mostly from Brazil and Vietnam, which currently face the 10% universal tariff Trump imposed in April. But the two countries could face much higher tariffs when the pause on the so-called “reciprocal” tariffs ends in July.
Most imported goods are actually parts or raw materials for larger products, such as steel and aluminum goods, now facing 50% duties. It will take time for those costs to filter through the supply chain and affect prices. But the sting would likely be broad, from grocery aisles to car lots.
San Diego in May had the highest inflation rate in the nation by a notable margin.
The inflation rate was 3.8% in May, said data released Wednesday by the U.S. Bureau of Labor Statistics’ Consumer Price Index. San Diego’s rate in March was also 3.8%, when it had the highest inflation in the U.S., tied with New York.
In May, San Diego was the clear leader in rising prices. Other metro areas with high inflation rates were New York at 3.4%, Chicago at 3.3%, and Boston at 3%. Meanwhile, Dallas had an inflation rate of 0.6% and Washington, D.C., was 1.9%.
Rising prices in the San Diego metro area, which includes all of San Diego County, are in contrast to the national inflation rate of 2.4%. The relatively low U.S. inflation rate helped ease concern among economists about tariffs hitting the economy earlier than expected. President Donald Trump celebrated the latest data on social media, arguing this meant the Federal Reserve could lower borrowing rates.
From April to May, the biggest gains were in transportation, up 1.2%, in gasoline, up 1.6%, and in medical care, up 2.2%. Some sectors declined, such as alcoholic beverages, down 2.7%, apparel, down 3.3%, and recreation, down 3.4%.
Alan Gin, economist at the University of San Diego, said housing costs — up 4.9% annually — continue to be the primary issue driving local inflation.
“It filters into the other categories,” Gin said, “because businesses say that they can’t attract workers here unless they pay higher wages.”
He said that when a business has to pay employees more, so they can afford rent, that means prices go up for customers. Gin noted the catch-all category of other goods and services (which includes everything from laundry to haircuts) was up 6.6% annually.
But don’t Honolulu, Los Angeles, and New York also have high home prices? Yes, Gin said, but there are other factors that San Diego must deal with: Gasoline costs are consistently higher than the national average, and it is somewhat geographically isolated, so it is more difficult for some goods to get here.
Gin isn’t alone in his assessment. David Ely, a finance professor for San Diego State University, also pointed to housing costs as something that affects San Diego’s local inflation rate. He noted it isn’t just high prices here, but it’s that they seem to be going up faster than the rest of the nation.
“Housing costs are certainly high,” Ely said, “and that makes sense given the shortage of housing we have in San Diego.”
On an annual basis, here are the areas where prices changed in San Diego County:
- Motor fuel: The price for unleaded regular was down 8.3%; unleaded midgrade was down 8.1%; and unleaded premium was down 7.8%.
- Food: Cereals and bakery products were down 2%; dairy, down 1.2%; fruits and vegetables, up 2.4%; and meats, poultry, fish, and eggs were up 3.3%.
- Shelter, including rent and the owner’s equivalent rent, increased by 5.3%.
- Transportation costs, which include automobile maintenance, vehicle parts, and car insurance, were up 2.5%. Used car and truck prices were up 2.2%.
- Apparel: Down 7.6%.
- Medical care: Up 3.7%.
When volatile food and energy costs are removed from the overall inflation rate, so-called core inflation in San Diego County saw a 4.3% annual rise, up slightly from 4.1% in March.
The national inflation rate rose just 0.1% in May, less than economists anticipated, said The Wall Street Journal. It didn’t stop some economists from still saying tariffs would raise prices. One theory is that businesses stocked up on inventories before tariffs took effect, preventing them from raising prices too much for now.
Nationally, inflation was highest in the Northeast at 2.8%. It was followed by the West and Midwest, both at 2.4%, and the South at 2%.