The May 2025 CPI report confirms inflation remains moderate but persistent. Released on June 11 by the U.S. Bureau of Labor Statistics, the data showed a 2.4% annual increase in consumer prices. This reading slightly beat expectations but points to stable price momentum overall.
Headline and Core CPI
On a month-to-month basis, the Consumer Price Index rose by just 0.1% in May. This matches the prior month’s increase and suggests no significant reacceleration in headline inflation. The 12-month reading now stands at 2.4%, up from 2.3% in April.
Core CPI, which strips out volatile food and energy categories, also increased by 0.1% month-over-month. This marks the third month in a row at that pace. Annually, core CPI held steady at 2.8%, showing inflation is cooling but still above the Federal Reserve’s 2% goal.
What’s Driving Prices?
The biggest upward contributor was shelter, which rose 0.3% from April. Housing costs remain sticky and are the largest single factor in both headline and core readings.
On the downside, energy prices fell by 1.0%, driven by a decline in gasoline costs. Prices for used cars, apparel, and airline fares also dipped. These declines helped offset the impact of rising shelter and food categories.
Market Reactions to the May 2025 CPI Report and Fed Policy Outlook
Markets responded calmly. Treasury yields slipped and equity futures ticked higher. Investors interpreted the May 2025 CPI report as evidence that inflation is not accelerating, which could support a more dovish Federal Reserve stance later in the year.
Despite political pressure, the Fed is expected to hold interest rates steady during the June policy meeting. Futures markets now anticipate a possible rate cut toward the end of 2025 rather than this summer.
Consumer Expectations Improve
Separate data from the New York Fed showed inflation expectations easing. One-year expectations dropped from 3.6% to 3.2%, and long-term projections also declined. This sentiment shift could encourage more consumer spending in the months ahead.
Final Thoughts on the May 2025 CPI Report
The May 2025 CPI report paints a picture of steady inflation with a few soft spots. While headline and core figures remain above the Fed’s ideal target, the trend is broadly encouraging. Falling energy prices and easing expectations offer relief, but persistent shelter costs suggest the inflation battle isn’t over yet.
With more data on the way—such as PPI and retail sales—the Fed will likely stay cautious. But for now, inflation appears to be on a manageable path.