U.S. consumer prices rose 2.4% in May, below expectations

U.S. consumer prices rose at a slower-than-expected annualised rate in May, despite market concerns that President Trump's aggressive tariff policies could impact inflation.

The Labour Department's consumer price index rose 2.4% year-on-year, up from 2.3% in April but below the expected 2.5%.

On a monthly basis, the index slowed to 0.1%. Economists had previously expected the index to remain flat at 0.2% from April.

The Bureau of Labour Statistics stated in a release that rising housing costs supported most of the growth in May, but this was offset by falling gasoline prices, which led to a 1% decline in energy spending.

Excluding volatile items such as fuel and food, the so-called ‘core’ CPI remained unchanged from April's 2.8%, while the month-on-month rate fell to 0.1%. Both figures were below expectations.

Before the data was released on Wednesday, many investors had expressed concerns that Trump's comprehensive tariff policy could boost inflationary pressures and ultimately impact broader economic activity.

Although Trump decided to delay imposing higher ‘reciprocal’ tariffs on most countries, the 10% general tariff and higher trade taxes on goods such as steel, aluminium, and automobiles remain in effect. Meanwhile, analysts noted that the effective tariff rate in the United States has risen significantly since Trump returned to the White House in January.

The potential inflationary impact of tariffs has put Federal Reserve officials in a dilemma: raising interest rates could curb inflation, but it might come at the expense of the resilience of overall economic activity. Meanwhile, Trump has been urging Federal Reserve Chair Jerome Powell to cut rates quickly, raising some questions about the Fed's independence.

Given this uncertainty, the Fed recently opted to keep rates in the 4.25% to 4.5% range and adopt a wait-and-see approach to further rate cuts. The market now expects the central bank to resume its rate-cutting cycle as early as September.