SAN FRANCISCO (S&P Global Ratings) June 9, 2025 --We project that the Consumer Price Index (CPI) for May will increase by 0.1% on a month-over-month basis, resulting in a year-over-year inflation rate of 2.4%. Concurrently, core inflation is likely to rise by 0.2% month over month, keeping the year-over-year rate steady at 2.8%, indicating target inflation of persistently above 2%.

We expect the U.S. Federal Reserve to maintain a steady course during the upcoming the Federal Open Market Committee (FOMC) meeting. However, we anticipate that the Fed will ease the federal funds rate by 50 basis points (bps) in the final quarter of 2025, as the downside risks to employment begin to outweigh the upside risks to its inflation outlook.

S&P Global Ratings today published this weekly preview of the most important upcoming economic data for the U.S. and Canada.

What's Happening This Week: Key Message

U.S.

Wednesday: CPI (May)

• We anticipate that the U.S. CPI will increase by 0.1% month over month in May, following a 0.2% rise in April. This will elevate the year-over-year inflation rate to 2.4%, slightly above 2.3% in April.
• Additionally, the core CPI, which excludes food and energy prices, is projected to rise by 0.2% month over month in May, unchanged from the previous month, resulting in a year-over-year core CPI of 2.8%. The year-over-year core CPI remained unchanged for the past three consecutive months.

Why it matters

• The forthcoming CPI data will be closely monitored, as we expect the effects of tariffs and ongoing uncertainties to manifest in the data. A sustained decline in energy prices, driven by weaker global demand, is likely to be offset by an increase in goods prices.
• Moreover, core CPI remains elevated, despite a gradual deceleration in shelter prices. The central bank faces challenges related to the prices of tradable goods, which are influenced by rising tariffs. This dynamic will be critical in shaping the inflation outlook and the central bank's policy decisions moving forward.

Looking ahead

• We anticipate inflation will increase as we move into the second half of the year, particularly with the expiration of the 90-day reciprocal tariffs pause set for July, given that ongoing trade negotiations have yet to yield conclusive results.
• Furthermore, the recent increase in tariffs on steel and aluminum to 50% is likely to further drive inflation higher, particularly impacting industries that rely heavily on these metals, such as the automobile sector.
• Moreover, the substantial inventory build-up by businesses prior to the April 2 "Liberation Day" announcement of reciprocal tariffs complicates the assessment of the timing of the tariffs' impact on consumers. This stockpiling could delay the transmission of higher costs to retail prices.
• We expect the Fed to hold its policy rate steady in its upcoming FOMC meeting next week, given the heightened policy uncertainty and still-elevated core CPI. Although the labor market is slowing, it has not deteriorated to the point of prompting the Fed to change its policy at this time.
• We anticipate that the Fed will maintain the current federal funds rate (4.25%-4.50%) through the third quarter, unless incoming data the next few months indicates a significant deterioration in economic activity.

Last Week's Data Highlights

U.S.

• May payroll data continued to surprise on the upside by adding 139,000 jobs higher than market expectations, after adding 147,000 jobs in April.
• Nonetheless, the positive surprise in May employment data was tempered by a cumulative downward revision of 95,000 jobs in April and March compared to earlier reports.
• April jobs were revised down by 30,000, while March numbers were revised down by 65,000.
• The healthcare sector added 62,000 jobs in May, while the leisure and hospitality sector contributed 48,000 jobs, primarily in food services and drinking establishments.
• The federal government continued to reduce its workforce in May, losing 22,000 jobs. This marks a cumulative decline of 59,000 jobs since January.
• The unemployment rate remained unchanged at 4.2% in May compared with April, holding steady for the third consecutive month.
• The labor force participation rate fell by 20 bps to 62.4%, driven by a sharp decline in labor supply of 625,000.
• Average weekly earnings increased by 0.4% month over month, following a 0.2% rise in the previous month. This brings year-over-year wage growth to 3.9%, remaining steady from the prior month.
• The Institute for Supply Management (ISM) manufacturing purchasing managers' index (PMI) slipped to 48.5 in May from 48.7 in April, indicating continued contraction for the third consecutive month. Production subindices remained in contraction, but showed modest improvement, rising to 45.4 from 44.0 in the previous month.
• Tariff-related uncertainties have delayed supply chains, as supplier delivery subindices rose to a three-year peak of 56.1 from 55.2 in the previous month. This increase in delivery times is perhaps attributed to transactions and shipments being stalled or delayed due to negotiations between buyers and suppliers stemming from tariffs.
• The import subindex fell sharply to 39.9, its lowest level since the global financial crisis, from 47.1 in the previous month. This decline signals the headwinds that firms are experiencing due to escalating trade tensions.
• The manufacturing output price index, however, largely remained steady in May, inching down to 69.4 from 69.8.
• The ISM services PMI dropped to 49.9 in May from 51.6 in April, falling just below neutral territory. This marks the lowest reading in the past 12 months.
• Meanwhile, a sharp decline in new orders significantly impacted the headline reading, which fell to 46.4-its lowest level since December 2022-from 52.3 in the previous month.
• The first trade data released after the Trump administration's reciprocal tariff imposition on April 2 shows that merchandise imports plummeted by 19.4% month over month in April, following an 18.9% increase in March.
• Meanwhile, exports declined by 1.5% month over month in April, following a 14.2% increase in the previous month, leading to a narrowing of the trade deficit to $87.9 billion, the lowest level in the past 13 months.

Canada

• The Bank of Canada kept the overnight rate unchanged at 2.75% for the second consecutive meeting, aligning with market expectations.
• The governing council is concerned about high uncertainty and core inflation remaining above the central bank's comfort level, with the impact of tariffs on trade-sensitive goods likely to push inflation higher in the coming months.
• Despite a material weakening in the labor market and softened economic activity, the council believes that the overall activity has not declined sharply.
• The central bank is carefully monitoring incoming economic data and is awaiting more clarity, with its primary focus remaining on price stability.
• The payroll data for May highlights the ongoing weakening of the Canadian labor market, with the unemployment rate rising, while new hiring remains sluggish.
• In May, employment increased by just 8,800 jobs, following an addition of 7,400 jobs in April and a loss of 32,600 jobs in March.
• Notably, employment among prime-age women rose by 42,000 jobs, offsetting a decline of 31,000 jobs among prime-age men.
• The wholesale and retail trade sector added 43,000 jobs in May, while the information and culture sector contributed 19,000 jobs.
• However, public administration saw a decline of 32,000 jobs, along with losses in accommodation and food services (down by 16,000) and transportation and warehousing (16,000).
• The decline in public administration employment was largely anticipated, as the sector had hired 30,000 temporary workers for last month's election.
• The unemployment rate inched up to 7.0% from 6.9%, marking the highest rate since September 2016 (excluding the pandemic years of 2020 and 2021). This represents the third consecutive monthly increase in the unemployment rate.
• Canada recorded its largest merchandise trade deficit in April, widening to C$7.1 billion from C$2.3 billion in March. This increase was driven by a 10.8% decline in exports, while imports decreased by 3.5% on a month-over-month basis.
• The 15.7% decline in exports to the U.S. was the primary contributor to the overall widening of Canada's trade deficit.
• Meanwhile, Canada's trade surplus with the U.S. nearly halved in April, decreasing from C$6.8 billion to C$3.6 billion. In contrast, Canada ran an average trade surplus of C$8.5 billion per month throughout 2024.