U.S. inflation picked up a bit last month as food costs rose, though overall inflation remained mostly tame.
Consumer prices increased 2.4% in May compared with a year ago, according to a Labor Department report released Wednesday. That is up from a 2.3% yearly increase in April. Excluding the volatile food and energy categories, core prices rose 2.8% for the third straight month. Economists pay close attention to core prices because they generally provide a better sense of where inflation is headed.
"The annual inflation rate was up by 2.4%, just up slightly from the previous month, and the core rate, that's the one that removes food and energy, was also up a little bit year over year, the core rate up 2.9%," says CBS News business analyst Jill Schlesinger. "The energy index has been trending lower over the last 12 months. The energy index down 3.5%. And Shelter, which accounts for a lot of the consumer price index overall, it is drifting lower but is still up by 3.9% from a year ago."
The figures suggest inflation remains stubbornly above the Federal Reserve’s 2% target, which makes it less likely that the central bank will cut its key short-term interest rate. Trump has repeatedly urged the central bank to reduce borrowing costs.
"Meat, poultry, fish, and eggs, your favorite proteins were down 0.1% month over month, but eggs are still up 41.5% from a year ago," notes Schlesinger. "Those prices should start to moderate."
Last week, the Labor Department’s Bureau of Labor Statistics, which compiles the inflation data, said it is reducing the amount of data it collects for each inflation report. Economists have expressed concern about the cutback, and while it isn’t clear how sharp the reduction is, most analysts say it is likely to have a minor impact. Still, any reduction in data collection could make the figures more volatile.
As for the Federal Reserve and what they will do? Schlesinger says it's likely they won't do anything.
"When the Fed meets next week, they've got two big data prints that they're going to look at," says Schlesinger. "Both the consumer prices and producer prices, as well as the jobs report. Neither of these categories, jobs or prices, has moved substantially since the Fed's last meeting. So that's why most economists believe that the Fed's going to do nothing when it meets next week."
What about tariffs?
Tariffs are also at play here, even with a new trade deal announced with China by President Donald Trump Wednesday morning. Schlesinger says prices are still going to be going up.
"The USDA has predicted that if the universal 10% tariffs on all trading partners and 30% for China, if those tariffs are maintained, we could see a rise in core inflation to 3.5%," Schlesinger adds. "I don't think this report gives us a big clue about what's going to happen with prices with the tariffs in place. We are expecting prices for goods, not services but goods, to start to increase, and we could see prices by the end of the year up by more than 3% or 3.5%."
One jelly and coffee giant is the latest company to warn tariffs are eating into its bottom line and likely previews those increased costs.
Shares of JM Smucker plunged 15% Tuesday after the maker of Folger's Coffee, Jiff Peanut Butter, and Smucker's jellies announced its profit for the current fiscal year will fall short of estimates because of increased tariff costs in its coffee business.
Smucker buys 500 million pounds of green coffee per year, mostly from Vietnam, China, and Brazil. The company increased its coffee prices in June, October, and May - and plans to do so again in August.