The Federal Reserve really wants inflation to be at or close to 2.0% per year, and it has a threshold for up to 2.5% inflation before it worries that prices are rising too fast. When investors and economists see that the Consumer Price Index (CPI) for all items rose by just 0.1% in May, they probably want to shrug, even if prices for the shelter and food indexes increased.

That figure is down from a 0.3% gain in April, and it met the estimates published by the Wall Street Journal.

The Bureau of Labor Statistics (BLS) showed that the core inflation reading for May, excluding food and energy, also rose just 0.1%, versus a 0.2% expectation. While food rose 0.3% and accounted for half of all gains in the total CPI, the energy index fell by 0.6% as gasoline prices fell 0.5% and electricity and natural gas prices also fell.

According to the BLS report for consumer prices in May, the indexes for shelter, medical care, airline fares, education, household furnishings and operations, and new vehicles all rose during the month. Prices declined for used cars and trucks, recreation and motor vehicle insurance.

The annual readings will be what the Federal Reserve and economists use for inflation readings. The all-items index rose by 1.8% on a seasonally adjusted basis for the 12 months ending May, but the core (again excluding food and energy) still rose by 2.0% over the past 12 months. The food index also rose by 2.0%, and the energy index fell by 0.5% over the past year.

Just a day earlier, the BLS reported that the Producer Price Index (for final demand) increased just 0.1% in May on a seasonally adjusted basis, after gains of 0.2% in April and 0.6% in March. Prices were up 1.8% on a trailing 12-month basis. Of the monthly gains and losses, the uptick was driven by services (up 0.3%) and the softness came from goods (−0.2%).

The BLS also showed on Tuesday that the core index for final demand (sans food, energy and trade services) rose by 0.4% in May in a move that matched April’s gains. For the 12 months ended in May, that core PPI rose by 2.3%.

Spending time and effort on the monthly readings has always looked like a much smaller effort on any given month because the price changes systemwide tend to be slower to see. It is on those annual readings where the real inflationary pressure is measured. That said, the overall inflation trends seem to be muted, but they are also closer all-in to that 2.0% target than we might think.

While tariff news dominated in the month of May, it will not be until the readings in June and later into the summer that the real impact from tariffs will begin to be seen. Some investors believe that tariffs are not so damaging, while others fear that the move of tariffs will cause a stagnant economy and inflation simultaneously — that’s stagflation for you.

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