U.S. Data Pulse: CPI: May CPI: Tariff push might be near completion

Research evidence excerpt

U.S. Data Pulse: CPI: May CPI: Tariff push might be near completion

UpdateM

May CPI

CPI came broadly in line with our expectations, with core prices rising 0.21% m/m in

May (MS: 0.22%, consensus: 0.3%) and headline prices up 0.47% m/m (MS: 0.56%).

These readings put core CPI at 2.82% y/y and headline CPI at 4.25% y/y.

Using today’s CPI data, we revised our May PCE inflation forecast slightly higher, to

0.26% m/m from 0.24% prior to the release, reflecting a stronger-than-expected

translation for core services ex-housing.

As we highlighted in our CPI preview, three themes were in focus: (1) tariff pass-through to

goods, (2) potential oil spillovers, and (3) signs of AI-related inflation.

On tariffs, pass-through appears to be nearing completion. Core goods inflation turned

negative for the first time this year, suggesting the tariff impulse is fading. We estimate

tariffs have lifted the price level by just over 60bp so far, close to the roughly 70bp

implied by our models. More importantly, our estimate of the tariff contribution to PCE

has been broadly stable since February/March, reinforcing the view that the impulse is

normalizing.

Oil spillovers into core remain limited. Higher oil prices pushed gasoline up for a third

consecutive month, keeping headline inflation elevated relative to core. However, pass-

through into core categories remains narrow, with airfares the main component showing

some pickup—coming in slightly above our expectations.

On AI-related inflation, there were no meaningful signs of acceleration. PCs remained

positive but decelerated, smartphone prices were broadly flat, and software inflation

normalized along recent seasonal patterns. This may signal some normalization in core

goods PCE ahead, given the larger weight of software in that index.