May inflation data benign but doesn’t fully reflect tariffs

Trend watch

Summer travel is ramping up. Weekly air passenger counts 3.2% to 18.5 million this week. That’s the second highest this year, just behind the 18.7 achieved in the week of Memorial Day.

U.S. air traffic should continue to steadily climb through roughly the week of Independence Day based on historical patterns. Once it reaches its cruising altitude in the next three weeks, our unscientific guesstimate (based on recent trends) is that weekly air passenger counts should approach 20 million this summer. The all-time record of 19.7 was set last June.

Hotel occupancy in the latest week surged to 67.0%, the highest since October but down 3.2% from 2024. Truist Securities Leisure/Lodging team, led by Patrick Scholes, attributes the softness to group booking due to fewer international inbound travelers, weaker government/ government-related, and perhaps some macro softness.

Rail volumes have started to recover, rising in the latest week and halting an ugly five-week slide. That was the longest weekly decline streak in total rail volumes since the lockdown months in March and April 2020. Prior to that, it’s only happened once in the past 15 years (in October 2015). 

Our take

The two main inflation gauges show very little impact from the tariff, which markets seemed to cheer about. We’d recommend tempering expectations that trend will persist. We anticipate that will change in the next couple of months as increased tariffs begin to bleed into prices.

It’s apparent that the prices for many goods haven’t moved for the most part – at least not yet. Many companies rushed to fill their foreign orders ahead of the tariffs, which is clearly reflected in the freight data for February, March, and April. Accordingly, we believe that many of the goods  sold through mid-May – when the price surveys are conducted for those two main inflation gauges – were done from pre-tariff inventories. Moreover, given the on-again/off-again nature of the tariffs, some companies have yet to adjust prices.

Alas, as those pre-tariff inventories are depleted, newly received goods will begin to reflect the tariffs. We should also note that while we believe prices will increase in the coming months, we don’t anticipate massive, widespread price increases. Companies will continue to adapt to the price changes and will adjust prices accordingly. The exception is for all imported steel and aluminum, which saw tariffs double to 50% regardless of origin.

The U.S. economy has remained remarkably resilient – even in the face of tariff announcements and massive policy uncertainty. The latter is likely to get further complicated by the packed summer Congressional agenda, which is wrestling with the so-called “One Big Beautiful” tax bill, the debt ceiling, and funding appropriations for the next fiscal year, among other issues.

We’re even beginning to see the stubbornly grim consumer sentiment thaw somewhat (see slide 11). Alas, the disorienting on-again/off-again nature of trade policy reinforces the notion that companies should stay in “wait & see” mode, which isn’t pro-growth for the economy or their business. Conversely, it likely doesn’t connote doom and gloom. Instead, we believe it translates into a “muddle-through” environment—where growth is slowing but not stalling. It also keeps the Federal Reserve (Fed) in a holding pattern for several more months, including at this coming week’s meeting.

Bottom line

The U.S. remains in a “muddle-through” environment—where growth is slowing but not stalling—and expect the Fed to stay in “wait & see” mode for now. We also anticipate economic data will continue to jostle about due to tariffs—replete with air pockets as demand normalizes following accelerated purchases in the early spring when consumers and businesses attempted to front-run tariffs.