After three straight months of easing inflation, prices are expected to tick back up in May—a shift that could ripple through everything from family budgets to Federal Reserve policy decisions. The Consumer Price Index (CPI) report, set to be released Wednesday by the Bureau of Labor Statistics, may offer the first clear evidence that President Donald Trump's recently imposed tariffs are beginning to impact the broader U.S. economy.
While inflation might not be the most exciting watercooler topic, it matters—a lot. It shows up in the price of your groceries, the cost of a new car, or the surprise total at the checkout counter when replacing a busted dishwasher. And this week’s numbers might tell us that those everyday expenses are about to get a bit heavier.
According to a Dow Jones and Wall Street Journal survey of economists, the CPI is expected to show a 2.4% increase in consumer prices over the past 12 months, nudging higher from 2.3% in April. Even more telling is the so-called “core” CPI—which excludes volatile food and energy prices. That number is projected to climb 2.9% year-over-year, up from 2.8%.
This may seem like a small jump, but in the language of central bankers and market watchers, it could signal a potential turning point. After months of tame inflation readings, the May report might mark the beginning of a new phase—one in which tariffs are no longer just policy headlines but have started to seep into the official economic data.
For months now, surveys—what economists call "soft data"—have suggested that companies are quietly preparing to pass on higher costs to consumers. Businesses, facing new import duties on a wide range of goods, are reportedly adjusting their pricing strategies behind the scenes. But up to this point, “hard data” like inflation and employment reports had yet to reflect those pressures. That could change on Wednesday.
Ronald Temple, chief market strategist at Lazard, put it plainly in a recent note: “While companies are carefully avoiding attracting attention by announcing price increases or highlighting that they are a result of tariffs, they have to choose between raising prices to protect margins, cutting other costs to offset tariffs, or suffering lower margins and a weaker share price.”
In simpler terms: if you’re a business importing tariffed goods, and you can’t absorb the costs or cut expenses elsewhere, your next move is raising prices. And guess who ends up footing that bill? Consumers.
One particularly telling piece of the puzzle will be what's called "core goods" inflation. That’s the price index for everything other than services, food, and energy—the stuff you buy and take home, like clothing, furniture, and electronics. The Bureau of Labor Statistics calls this "commodities less food and energy." It's not usually a showstopper in economic data, but this time, it's worth a close look.
Why? Because this slice of the CPI is expected to show some of the clearest effects of tariffs. From January 2024 through March 2025, core goods prices had actually been declining—a pleasant surprise for shoppers. But April broke that streak with a 0.1% uptick. And if forecasts are right, May could see an even bigger bump.
Michael Gapen, chief U.S. economist at Morgan Stanley, expects to see “a modest push from tariffs,” particularly in new cars, apparel, and household appliances—items heavily affected by recent trade measures. These are the goods you don't buy every day, but when you do, price tags matter. That family planning a summer road trip and thinking about upgrading their minivan? They may be in for sticker shock at the dealership. The couple renovating their kitchen might find the cost of a new refrigerator creeping higher.
Beyond the checkout line, inflation readings have serious implications for monetary policy. The Federal Reserve has held interest rates steady this year, opting for caution in an environment of mixed signals. Their goal is to keep inflation near 2%, which they monitor using a different gauge—the core Personal Consumption Expenditures (PCE) index. But CPI trends still influence sentiment and expectations.
If inflation proves stickier than hoped, the Fed might feel compelled to keep interest rates elevated longer than investors had been banking on. That’s a big deal for anyone with a mortgage, car loan, or business credit line. Cheap borrowing has been one of the quiet engines of the post-pandemic recovery, and if rates don’t come down as soon as expected, it could slow spending and investment.
Temple, from Lazard, doesn’t think the Fed will raise rates further in response to tariff-driven inflation. But he also doesn’t see rate cuts happening in the near future—especially if core inflation creeps toward 4%, as some projections suggest. “I do not expect the Fed to raise rates in response to tariff-induced inflation,” he wrote. “But I also do not anticipate any rate cuts against a backdrop where core inflation is likely to rise.”
For investors, Wednesday's report could shake up expectations that had become somewhat complacent. Wall Street has been rallying in recent weeks, fueled by hopes of an eventual rate cut and a resilient economy. But if the inflation data disappoints—or surprises on the high side—it could trigger volatility. After all, markets like certainty, and inflation is the opposite of that.
For everyday Americans, though, this isn’t just about rate hikes and economic models. It’s about whether a carton of eggs costs $4 or $5. It’s about whether your next car repair comes with a higher labor charge or pricier parts. Inflation may be a broad economic concept, but its fingerprints are found on everything from the gas pump to your child’s back-to-school wardrobe.
If May’s inflation data does indeed confirm that tariffs are starting to hit home, it will likely set the tone for economic conversations throughout the summer. Businesses will be pressed to reveal how they’re handling cost increases, and policymakers will have to weigh short-term inflation against long-term growth prospects.
For now, all eyes are on Wednesday’s report. Whether you’re an economist, investor, or just someone trying to budget for a vacation, what comes out of the Bureau of Labor Statistics this week could affect the financial rhythm of the months ahead.