Inflation falls short 

June 11, 2025

The consumer price index (CPI) increased 0.1% in May, which fell short of market expectations for a 0.2% rise. On an annual basis, the index rose to 2.4% from 2.3% in April.

Food prices rose 0.3% after declining 0.1% in the prior month. Food away from home also rose 0.3%, which reflects a moderation from the 0.4% increase in each of the previous three months. The moderation was driven by full-service restaurants, up 0.3% after rising 0.6% in April, and no change in vending machines prices after a 1.2% rise the month before.

Energy prices declined 1% during the month. A 2.6% drop in gasoline prices and a 1% decrease in natural gas prices contributed to the decline.

The core CPI, which excludes food and energy components, rose 0.1%, which was below the consensus estimate of up 0.3%. That translates to a 2.8% increase from a year ago, the same as in April and March. 

Goods prices were unchanged in May after rising 0.1% in April. Goods inflation was held back by declines in big-ticket items. New vehicle prices fell 0.3% while used vehicle prices declined 0.5%. Although the unit volume of new motor vehicle sales declined in May, a number of automakers announced they would hold the line on pricing or continue employee discount programs for a few months along with sales promotions over the Memorial Day Holiday; these decisions likely contributed to the price decline. 

Large appliances rose 3% in price during May and increased 1.5% on an annual basis. The annual increase marks the highest reading since mid-2022.

Apparel prices declined for the second consecutive month, down 0.4% after falling 0.2% in April. Retailers continued to discount existing inventories to bolster their cash cushion.

Service sector prices

Shelter costs increased 0.3%, the same as April. Apartment rents and owners’ equivalent rent rose 0.2% and 0.3%, respectively. Hotel costs declined 0.1%, the third consecutive month of decline as travelers cut back on discretionary travel. For the same reason, airfares declined for the fourth consecutive month, down 2.7% in May. Lower fuel costs added to the downward pressure on airfares. High-end travel has held up better than that for budget conscious consumers.

Motor vehicle insurance costs rose 0.3% after rising 0.2% in April. Parts costs, those that are not exempt from tariffs, are rising. Severe weather events continue to send insurance premiums higher, particularly after hailstorms and tornadoes, which are costlier for vehicle repairs than other natural disasters.

The preliminary data in the CPI suggest that the Federal Reserve’s favored inflation measure, the Personal Consumption Expenditures (PCE) index, will post a soft increase in May. Tomorrow’s producer price index report for May will provide further information on the direction of May PCE to be released later this month.