Will Inflation Stay Tame?

Bottom Line: This week’s inflation data is expected to show a slight uptick in consumer prices. However, a moderation in consumer spending could limit the ability of businesses to pass tariff-induced cost increases to consumers.

This week brings the economic calendar’s main event: the May consumer price index (CPI) release on June 11 and producer price index (PPI) data on June 12. These reports will provide crucial insight into whether the recent moderation in price pressures can be sustained amid ongoing trade tensions.

April’s Inflation Signals

April’s CPI data showed consumer prices rose 0.2% monthly, translating to a 2.3% annual rate – a reassuring deceleration from earlier in the year. Producer prices fell 0.5% in April but are expected to rise due to tariffs.

The key question is whether producers can successfully pass tariff-induced cost increases to consumers without derailing the broader disinflationary trend.

The Precautionary Savings Signal

The personal savings rate jumped to 4.9% in April from 4.3% in March, reaching a one-year high. The savings rate was just 3.5% in December 2024. This isn’t just a statistical curiosity – it’s a powerful indicator that American households are pulling back on spending and preparing for potential income shocks.

When people choose to save rather than spend, it signals declining confidence in their future income prospects. This behavior directly reduces consumer demand, which in turn limits businesses’ ability to raise prices. The math is straightforward: less demand equals less pricing power.

Labor Market Stress

The employment picture reinforces this demand-side story. In May’s jobs report, half of the sectors added jobs, while the other half saw payroll cuts – a sign of slowing economic momentum.