Is inflation over?

The latest Consumer Price Index reading today suggests that fears over tariffs stoking the hellfire flames of inflation haven't materialized…yet.

Here are the numbers you should know:

• CPI inched up 0.1% month over month in May, lower than analyst estimates of 0.2%.
• That put the annual inflation rate at 2.4%—higher than April’s 2.3%, but the lowest yearly increase since February 2021.
• Core CPI, which excludes food and energy and is considered a better gauge of overall economic trends, rose 0.1% for the month and 2.8% for the year. Both are lower than analyst expectations of 0.3% and 2.9%, respectively.

Shelter rose 3.9% year over year, and was the primary factor in boosting overall CPI this month. The spending categories with the steepest price drops included airlines, new and used cars, and apparel—which adds up to big wins for shoppers and travelers.

And omelet lovers will be happy to hear that egg prices fell by 2.7% to their lowest level since December…although the cost of a dozen eggs is still up 41.5% since last year.

So far, so good

Stocks soared in the wake of this soft-and-cuddly inflation report, but analysts warn that the full impact of tariffs hasn’t hit.

“Today’s below forecast inflation print is reassuring—but only to an extent,” said Chief Global Strategist at Principal Asset Management Seema Shah. “Tariff-driven price increases may not feed through to the CPI data for a few more months yet, so it is far too premature to assume that the price shock will not materialize.”

EY-Parthenon Chief Economist Gregory Daco agreed, pointing out that with “CPI data tending to lag by one to two months, we should prepare for a muggy summer of price increases.”

Time for a rate cut?

Now that inflation seems to be chilling out a bit, all eyes turn to the Federal Reserve for any signals of a rate cut at its next meeting on June 17 and 18. Parroting President Trump, Vice President JD Vance demanded the Fed slash rates in a post on X, adding, “The refusal by the Fed to cut rates is monetary malpractice.”

So far, it looks like the White House won’t get what it wants anytime soon. The CME's FedWatch, which attempts to predict Fed moves based on futures prices, pegs the probability of rates holding steady this month at over 99%.

The reason the Fed will likely stay put is simple. “Inflation is still above target,” said BlackRock’s Chief Investment Officer of Global Fixed Income Rick Rieder. “With inflation at this level, it would take labor weakness and presumably a couple of months or so of that for the Fed to consider resuming rate cuts. That may be possible by the September meeting.”

The market’s base case at the moment is two rate cuts in the back half of 2025. In the meantime, it might be time to stock up on eggs.—JD