Tariffs nudge US inflation higher in May, World Bank flags weakest decade for global growth

America’s inflation engine is picking up speed again, just as global growth shows signs of long-term fatigue.

A fresh reading on consumer prices is expected to confirm a modest increase, as early impacts of new US tariffs begin reaching shoppers.

Meanwhile, a World Bank report has warned the world economy could be heading for its slowest decade since the 1960s.

US inflation ticks up as tariff pressures mount

Consumer prices in the United States are expected to rise at a faster pace in May, driven in part by early signs of cost pass-through from new trade tariffs.

As per a Bloomberg survey of economists, the core Consumer Price Index (which excludes food and fuel) likely rose by 0.3 per cent in May, slightly higher than April’s 0.2 per cent gain.

If confirmed, annual inflation would stand at 2.9 per cent, indicating a potential reversal of the cooling trend seen in early 2024.

Some of this price pressure appears to be linked to import levies introduced under Donald Trump’s trade policy. While most retailers have so far absorbed the higher costs or used pre-tariff stock, this buffer is thinning.

Walmart, for instance, has already warned that prices on some items may need to rise in the coming weeks.

According to a note by Pantheon Macroeconomics economists Samuel Tombs and Oliver Allen, only a limited number of products were affected by tariffs in May, but the situation could escalate.

They suggested that a broader inflationary impact is likely to emerge in June, as reported by Bloomberg.

Sectors particularly exposed to trade frictions include consumer electronics, apparel, household appliances, and new vehicles.

As highlighted by Bank of America economists Stephen Juneau and Jeseo Park, audio equipment prices jumped sharply in April, and more categories could follow if tariffs remain.

Meanwhile, Wells Fargo analysts Sarah House and Nicole Cervi observed that companies initially coped with the tariff shock through inventory buffers and hopes of a policy rollback. But they warned, “as the higher tariff regime persists, shielding consumers from the costs is likely to become more challenging," as quoted by Bloomberg.

Despite the pickup in inflation, the US Federal Reserve is not expected to raise interest rates at its upcoming policy meeting.

Fed Chair Jerome Powell has previously said the central bank would assess trade impacts over time before making any move.

Airfare and hotel prices provide some relief

Interestingly, not all sectors are seeing rising prices. Services such as travel and accommodation appear to be moving in the opposite direction. Analysts expect continued softness in airfares and hotel rates, potentially due to reduced spending on leisure and international tourism.

According to Bloomberg, BNP Paribas economist Andrew Schneider anticipates deflation in both air travel and hospitality, attributing the trend to lower demand.

Similarly, Bloomberg Economics’ chief US economist Anna Wong has said that a slowdown in discretionary spending, especially among government and business travellers is likely pulling prices down.

“Consumers and the public sector are cutting back on travel this year, and airfare inflation is still on a downward track,” Wong noted in her latest commentary, as per Bloomberg.

World Bank warns of global slowdown, blames tariffs and uncertainty

As the US wrestles with domestic price pressures, the international outlook is darkening. In its latest economic report, the World Bank forecasts the slowest decade of global growth since the 1960s.

The Bank now sees global GDP expanding by just 2.3 per cent in 2025, a downgrade of 0.4 percentage points from its previous forecast in January. Growth in 2027 is expected to inch up to 2.6 per cent.

Nearly two-thirds of all countries have seen their forecasts trimmed.

The US is among the economies hit hardest by the downgrade. The World Bank cited ongoing trade tensions, rising tariffs, and weakening investor confidence as reasons for the reduced outlook for the US in both 2025 and 2026.

In contrast, China’s growth forecast remained unchanged. The Bank said Beijing has sufficient fiscal tools to counter global shocks and navigate geopolitical instability.

The report explicitly warned that if tariff escalation continues, it could cause a major rupture in global trade. “Global trade could seize up in the second half of this year, accompanied by a widespread collapse in confidence, surging uncertainty and turmoil in financial markets,” the Bank wrote.

Despite these warnings, the World Bank stopped short of calling a global recession, saying the risk remains low—at under 10 per cent.

The gloomy outlook echoes a recent OECD projection, which revised global growth expectations down to 2.9 per cent from 3.1 per cent.

Meanwhile, a new round of US–China trade talks concluded in London this week with both sides agreeing on a tentative framework to ease tensions, including export curbs on key technologies.