May 2025 CPI Inflation Report: Gas Prices Drop Fuels Slowest Rise Since 2023, What It Means for Fed Rate Cuts

Diccon Hyatt is a seasoned financial and economics journalist who has extensively covered the evolving economy during the pandemic era with clear, accessible reporting. His work focuses on how economic trends impact personal finances and markets. He has contributed to U.S. 1, Community News Service, and the Middletown Transcript.

Updated June 11, 2024: This article now includes the latest insights on how gas price fluctuations affect inflation trends.

Key Insights

• Economists predict the Consumer Price Index (CPI) report for May 2024 will show minimal inflation growth.
• May’s price increase is expected to be the smallest since October 2023, largely due to declining gasoline prices.
• Moderate inflation could set the stage for potential Federal Reserve interest rate cuts later this year, though May's data alone may not trigger immediate action.

Falling gasoline prices have made May 2024 one of the calmest months for inflation since late 2023, according to forecasts. The Bureau of Labor Statistics’ upcoming CPI report is anticipated to reveal a 0.1% price rise in May, down from 0.3% in April and marking the slowest monthly increase since October 2023. Year-over-year inflation is projected to hold steady at 3.4%, matching April's rate.

The easing of inflationary pressures is largely attributed to gas prices. Nationwide average prices for unleaded gasoline dropped by approximately 18 cents per gallon to $3.61 in May, based on Gasbuddy data, accounting for a significant part of the inflation slowdown, experts say.

"Energy prices likely declined in May on a seasonally adjusted basis due to falling gasoline costs," noted economists at Bank of America Securities. "This trend offers relief to consumers after price hikes in March and April. With crude oil prices trending lower, gasoline prices are expected to continue declining shortly, applying downward pressure on headline CPI."

If these projections hold, it could alleviate concerns about inflation resurgence following its sharp decline from the 41-year peak of 9.1% in June 2022.

Federal Reserve Eyes Inflation Control Before Rate Cuts

Despite early 2024 seeing higher-than-expected consumer price increases, April’s moderate inflation raised hopes that the spike was temporary. Continued low inflation in May may encourage the Federal Reserve to consider cutting interest rates later this year.

Scott Anderson, Chief U.S. Economist at BMO Capital Markets, commented, "Cooling inflation progress seems to have resumed in Q2, keeping Fed rate cuts on the table for later in 2024, though timing remains dependent on incoming data."

The Fed’s policy committee has emphasized the need for consistent downward trends in inflation—particularly consumer prices—to approach its 2% target before reducing rates. Since last July, the central bank has maintained the benchmark fed funds rate at a 23-year high, aiming to slow economic activity and curb inflation by increasing borrowing costs.

Core Inflation Remains a Focus for Policymakers

Following the release of the inflation report Wednesday morning, Fed officials will announce their interest rate decision and closely analyze the data.

Core inflation, which excludes volatile food and energy prices, will be a primary focus as it better reflects underlying inflation trends. Median forecasts estimate core inflation to slightly decrease to 3.5% annually from 3.6% in April. However, some critical core prices, such as used vehicles, might have risen notably, according to Ian Shepherdson, Chief Economist at Pantheon Macroeconomics, based on JD Power data.

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