This week’s reports on consumer and producer prices in the U.S. showed that inflation stayed surprisingly calm in May, rising just 0.1%. That’s good news for now, especially considering ongoing concerns that tariffs from President Trump’s trade policies might cause prices to spike. But while things have remained steady so far, economists warn we might not be out of the woods just yet.

So, why hasn’t inflation taken off? There are three main reasons:
1. Companies stocked up early – Many businesses rushed to buy imported goods before tariffs officially took effect, giving them time to sell those items without raising prices right away.
2. Tariffs take time to show up – It often takes several months for increased import costs to work their way through supply chains and appear in the prices consumers pay.
3. Consumers are cautious – People are watching their spending more closely, which limits how much companies can raise prices without losing business.

That said, there are already signs that certain prices are starting to creep up, like canned fruits and vegetables, coffee, and appliances. These are goods that rely more heavily on imports, making them more sensitive to tariff changes.

Looking ahead, many experts believe inflation could pick up in the coming months as businesses work through their inventories and begin feeling the full effect of tariffs. I mentioned in a recent commentary that some retailers, like Walmart, have already said they’ll be raising prices soon.

The Federal Reserve is keeping a close eye on the numbers and is expected to hold interest rates steady. However, if inflation starts to increase faster than expected, or if consumers start changing their spending habits in response, it could force the Fed’s hand on future rate decisions.

For the time being, the pressure is building, but it hasn’t broken through or had a significant impact at the consumer level. We’ll be watching closely over the summer months to see if that changes and whether we'll need to make any adjustments.