Inflation Rises
Inflation ticked up slightly in May, rising 2.4% compared to a year ago and edging up 0.1% from April, according to the latest data released by the U.S. Bureau of Labor Statistics. The figures, while not unexpected, highlight the continued complexity of the post-pandemic economic recovery and underscore the Federal Reserve’s delicate balancing act in managing interest rates and price stability.
NBC News’ Brian Cheung and Investopedia Editor-in-Chief Caleb Silver joined forces to break down the key takeaways from May’s inflation report, offering insights into what these numbers mean for households, markets, and policymakers moving forward.
Inflation Shows Continued Cooling, But Progress Remains Uneven
The 2.4% year-over-year increase in the Consumer Price Index (CPI) marks a modest step down from previous months and is the lowest annual rate since March 2021. While the downward trend is encouraging, the 0.1% monthly gain — though small — suggests inflationary pressures haven’t completely subsided.
“We’re still seeing price growth, but it’s nowhere near the red-hot levels of 2022,” Brian Cheung said during a segment on NBC News. “The big picture is that inflation is cooling, but the pace is slowing, and some categories are proving stubborn.”
The May report showed that energy prices fell slightly, helping ease overall CPI numbers. However, key areas such as shelter, car insurance, and food away from home — particularly restaurant dining — continued to climb, weighing on consumer budgets.
Where Are Prices Still Rising?
Though inflation has come down substantially from its 40-year highs in 2022, several everyday costs remain elevated or are even climbing. Caleb Silver pointed to some notable standouts:
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Shelter: Housing costs remained one of the largest contributors to inflation in May, increasing by 0.4% month over month. This is a concern since rent and owner-equivalent rent (a measure of what homeowners would pay to rent their own homes) make up over 30% of the CPI index.
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Auto Insurance: Premiums rose again, up nearly 20% year over year. Analysts attribute this to higher repair and replacement costs, supply chain constraints, and increased accident rates.
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Dining Out: Food away from home continues to grow more expensive, up 4% compared to May 2024. Labor shortages and rising ingredient costs are playing a role here.
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Services Sector: Services inflation remains sticky, with strong wage growth and labor demand contributing to higher costs for things like haircuts, medical services, and entertainment.
The Federal Reserve’s Dilemma
The new inflation data puts the Federal Reserve in a challenging position. With inflation steadily moving toward the Fed’s 2% target — but not quite there — investors and analysts are watching closely to see whether the central bank will begin cutting interest rates later this year.
“The Fed is caught between two mandates: controlling inflation and supporting employment,” Cheung explained. “The labor market is still strong, but wage growth is slowing, and the Fed doesn’t want to act too soon.”
The Federal Open Market Committee (FOMC) has held rates steady since late 2024 after a series of aggressive hikes aimed at cooling inflation. Economists expect the Fed to proceed cautiously, watching core inflation (which excludes volatile food and energy prices) and labor data in the months ahead.
Markets React with Measured Optimism
Markets responded to the May inflation report with modest gains, as the data broadly aligned with economists’ expectations. The Dow Jones Industrial Average rose slightly, while the S&P 500 and Nasdaq held steady, reflecting investor hopes that rate cuts may be in sight later in 2025.
“Investors are encouraged by the downward trend, but they’re not jumping the gun,” Silver noted. “There’s still concern about the Fed’s timeline. One bad inflation print could delay cuts.”
What This Means for Consumers
Despite the improving inflation picture, many Americans say they’re still feeling the pinch. A recent Gallup poll showed that 71% of respondents said prices are rising faster than their incomes, and two-thirds reported they’ve cut back on discretionary spending.
“For families, a 2.4% inflation rate might sound manageable, but when housing, insurance, and food all go up at once, it adds up fast,” said Cheung. “Wages haven’t kept pace across all sectors, so the average person isn’t necessarily feeling relief yet.”
Looking Ahead
Economists will be watching the next few months closely to determine if inflation continues its descent toward the Fed’s 2% goal — and whether core categories like shelter and services follow suit.
The next CPI report, due in July, will offer further clues about the direction of inflation and the timing of any potential Fed action.
Until then, consumers, businesses, and policymakers remain on high alert, as even small shifts in prices can have significant ripple effects across the economy.
“In this environment, steady isn’t necessarily bad,” Silver concluded. “We’re not out of the woods, but we’re moving in the right direction — just very slowly.”
