Announcement of the Consumer Price Index (CPI) in the United States for May 2025

Signs of inflation easing and coexistence of structural burdens

In May 2025, the Consumer Price Index (CPI) in the United States confirmed the trend of easing inflation, providing relief to the market. The CPI rose by 0.1% compared to the previous month and by 2.4% year-over-year, slightly below the market expectation of 2.5%. Notably, the core CPI, which excludes the highly volatile food and energy sectors, also showed increases of 0.1% and 2.8%, respectively, indicating that the gradual easing trend is continuing. However, it still remains above the Federal Reserve's target of 2%, indicating that structural pressures have not yet been resolved.

Detailed Trends by Item

In the food sector, an overall upward trend continued, primarily focused on grains and bakery products (up 0.3% compared to the previous month, up 2.9% year-over-year). However, prices for protein-related items such as meat, fish, and eggs fell, partially offsetting this trend. The energy sector recorded a clear decline, which was the only notable decrease among CPI categories. Notably, gasoline prices dropped by 2.6% over the month, significantly contributing to overall price stability (down 1.0% compared to the previous month, down 3.5% year-over-year). The housing and services sector was a key driver of core inflation increases. Housing costs rose by 0.4% from the previous month and 3.9% year-over-year, accounting for more than half of the total core CPI. In particular, the steady rise in rent and Owner's Equivalent Rent (OER) is acting as a structural burden. In other categories, airline fares and auto insurance premiums increased, while used cars, clothing, and communication services showed a downward trend. This can be interpreted as a sign of changing consumer patterns and market adjustments.

Policy Implications

The recent CPI announcement has significant implications for the direction of the Federal Reserve's monetary policy. While inflation appears to be easing somewhat, the core inflation rate remains above the target, and particularly the structural potential for rising housing costs may limit the Fed's early policy shift. Nevertheless, the market is increasingly viewing the possibility of a rate freeze at the June FOMC meeting as high, with an emphasis on the potential for rate cuts that could occur in September or November. Notably, the enhanced tariffs on China planned by former President Trump for the second half of the year could put upward pressure on import prices, making them a potential factor for a future inflation rebound.

Market response and future outlook

The market reaction was positive. Immediately after the announcement, U.S. Treasury yields fell, and the stock market closed higher on expectations of moderating inflation. This suggests that investors interpreted the Federal Reserve's monetary policy as moving in a more accommodative direction. Looking ahead, the Fed is expected to continue making gradual judgments by considering overall real indicators such as employment and consumption, in addition to CPI. If inflationary pressures remain stable at current levels, the possibility of two rate cuts later this year is being regarded as a realistic scenario.

Conclusion

The CPI for May 2025 has provided a positive signal to the market, and inflation continues to show a downward trend. In particular, the decline in energy prices has played a crucial role in stabilizing prices. However, core inflation, which is centered around housing costs, remains firmly entrenched, raising concerns that external factors such as tariff policies could act as a re-stimulating force for inflation. The Federal Reserve will continue to respond cautiously, but the market is already pricing in the likelihood of a monetary policy easing cycle in the second half of the year. This is a time when a sensitive balance between economic policy and financial markets is required.