May PCE Report Forecast: Still Just ‘the Tip of the Tariff Iceberg’

Key Takeaways

• The full effect of tariffs is not expected to show up in May PCE inflation, with the bulk of the price increases coming later this year.
• The report is expected to show a 2.3% rise year over year.
• Economists expect to see core inflation to show a 2.6% increase from last year.

Forecasts for the May Personal Consumption Expenditures Price Index report expect the latest set of inflation data to only just begin reflecting the effects of tariff-based price hikes, with consumers still not yet fully feeling the brunt of the Trump administration’s trade war.

Overall, economists expect that consumer prices as measured by the PCE Index rose by 0.1% in May, according to FactSet’s consensus estimates. That is the same as April and a 2.3% year-over-year increase. Economists expect that core inflation—which excludes volatile food and energy prices and is the Federal Reserve’s preferred inflation metric—rose 0.1% on a monthly basis and 2.6% on an annual basis in May.

“There’ll be a small acceleration in inflation, but that is just the tip of the tariff iceberg,” says David Kelly, chief global strategist at JP Morgan Asset Management.

May PCE Report Highlights

• PCE report release date and time: Friday, June 27, at 8:30 a.m. EDT
• The PCE Price Index is forecast to have risen by 0.1% in May, the same as in April.
• Core PCE is expected to have risen 0.1% in May, the same as in April.
• Year over year, the PCE Price Index is forecast to have risen 2.3% in May, up from 2.1% in April.
• Core PCE year over year is expected to have risen 2.6% after rising 2.5% in April.

Full Force of Tariffs Expected to Hit Consumers by the End of Summer

Kelly used US tariff revenue from May to create a rough estimate of the effective tariff rate on goods imported during the month at 5%-6%. While this is around double where it was this time last year, it is still below the 10%-15% rate he expects to be in effect by the fourth quarter of 2025.

Goldman Sachs wrote in a note earlier this month that the Consumer Price Index and Producer Price Index reports suggest tariffs had “modest” effects on prices in May. The analysts expect the bulk of tariff-induced inflation to show up between June and August.

Kelly thinks it will take a bit longer, with the full effects of tariffs showing up in inflation data around September or October. “The tariffs are being paid on the inventory coming in,” he says. “That inventory is going to make its way into and out of the warehouses onto a truck, off to a wholesaler, and eventually to retail shelves.” On top of the time this takes, he says retailers also need to work through inventory imported pre-tariffs, which may not be marked up.

The effect, whenever it manifests, is likely to be significant. Bill Adams, chief economist at Comerica Bank, says he expects tariffs to add 0.75-1.00 percentage points to year-over-year inflation, with the PCE inflation rate peaking roughly by the end of 2025. Kelly puts the figure even higher at 0.9-1.5 points.

Uncertainty May Result in the Fed Holding Off on Cuts

Despite the relatively low inflation numbers of the past couple of months, futures markets put a 77% chance of the Federal Reserve holding steady on interest rates at its July meeting, according to CME FedWatch.

Bank of America, which expects core PCE inflation to have risen roughly in line with consensus estimates, wrote in a report: “Overall, this would be a good number for the Fed, but it’s hard to take too much signal, given the uncertainty tariffs pose around the inflation path.”