Core Inflation Stable at 2.0% Despite Trump Tariffs

The White House has asserted that under President Trump's leadership, the United States has been successful in managing inflation. The core inflation rate has stabilized at 2.0% on an annual basis, reaching its lowest point since March 2021. This stability is notable given the implementation of tariffs by the Trump administration, which have had a limited impact on consumer prices. In May, consumer prices rose by 2.4% compared to the previous year, a slight increase from the previous month. However, the month-over-month increase was only 0.1%, down from 0.2% in April. This deceleration was largely due to falling gasoline prices, which offset rising costs in other areas such as rent and groceries.

The tariffs imposed by President Trump have had a mixed effect on prices. While they have contributed to the rising cost of certain goods like appliances and toys, overall goods prices remained stable in May. Economists predict that the full impact of these tariffs on inflation will become more apparent in the coming months. The administration has imposed an import tax of at least 10% on nearly all goods imported into the U.S., with the potential for this rate to increase further following a 90-day window for trade negotiations.

Federal Reserve Governor Adriana Kugler has expressed concern that these tariffs could reverse the progress made on inflation over the past two years. She expects that higher tariffs will continue to raise inflation through 2025. The Federal Reserve, which cut its benchmark interest rates by a full percentage point last year, has been cautious about further rate cuts due to the risk that tariffs could reignite inflation. Despite persistent calls from the president for additional rate cuts, the central bank is expected to maintain steady interest rates at its upcoming meeting.

In May, grocery prices increased by 0.3%, while the price of eggs continued to decline as the nation's egg-laying hens recovered from an avian flu outbreak. Although gasoline prices have decreased in recent months, other energy costs are on the rise. Higher electricity prices are anticipated to increase air conditioning bills by 2.1% this summer, driven by strong demand from commercial and industrial customers, as well as increased natural gas exports used for electricity generation.

Excluding volatile food and energy prices, core inflation stood at 2.8% for the 12 months ending in May, unchanged from the previous 12-month period. This stability in core inflation suggests that the Trump administration's economic policies have so far managed to keep inflation in check, despite the challenges posed by tariffs and other economic factors. The administration's approach to managing inflation has been characterized by a focus on maintaining stable prices and ensuring economic growth, even in the face of external pressures such as tariffs and trade negotiations.