Annual inflation slowed to 2.3%, down from 2.4% in March, marking the smallest year-over-year gain since February 2021, according to the Bureau of Labor Statistics.
Monthly price growth remained modest, with headline and core inflation each rising 0.2%—slightly below economists’ expectations.
The CPI increase was driven mainly by higher shelter costs (+0.3%) and energy prices (+0.7%), partially offset by a 0.4% decline in the food at home index.
“This was another well-behaved CPI inflation report (the third in a row) that showed favorable moderation in goods and energy inflation,” noted BMO’s Scott Anderson.
Tariff risks loom as markets cautiously eye a potential Fed cut in September
TD’s Thomas Feltmate noted that while Trump’s sweeping tariffs were announced in April, their effects have yet to materialize—though that’s likely to change in the months ahead.
“While goods prices also turned higher last month, there was little evidence to suggest that the uptick was driven by President Trump’s sweeping tariffs announced at the beginning of April,” he said. “Efforts by companies to stockpile inventories and a willingness to absorb some of the tariff costs suggests a more incremental strengthening in goods prices is likely to occur over the coming months.”
Anderson noted that this is the third CPI report that has shown “favourable moderation” this year, which opens the possibility of the Fed cutting rates in 2025.
“It probably won’t be enough to move the Fed off the sidelines anytime soon, but does leave open the possibility of some rate cuts later this year,” he wrote. “Fed funds futures are now fully pricing in between two and three quarter-point rate cuts in 2025 with the first one most likely coming in September.”
Even a slight month-over-month rise in U.S. inflation can put upward pressure on Canadian interest rates—and, in turn, mortgage costs.
U.S. Treasuries and Canada’s 5-year bond yields ticked higher following the inflation data, with the U.S. 10-year up 0.04% to 4.50% and Canada’s 5-year up 0.02% to 2.82%.
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Last modified: May 13, 2025