Disinflation is no longer a blip, but a trend. The Bureau of Labor Statistics reported that the Consumer Price Index (CPI) increased 0.1 percent in May, down from 0.2 percent in April. The annual rate of change of 2.4 percent was almost identical to April’s and slightly lower than March’s. 

Core inflation, which excludes volatile food and energy prices, also rose 0.1 percent last month. It has risen 2.8 percent over the past year.

As with previous months, shelter prices pulled up the average. “The index for shelter rose 0.3 percent in May and was the primary factor in the all items monthly increase,” the BLS noted. Much (if not all) of the excess shelter inflation can be attributed to measurement error: the shelter index lags market rents. As a result, the index for shelter tends to overestimate the rise in actual shelter prices during the later phase of a tightening cycle. 

Ongoing disinflation presents a challenge for central bankers. Monetary policy passively tightens when inflation slows down. That’s because a given market (nominal) rate of interest corresponds to a higher real (inflation-adjusted) rate of interest when prices rise less quickly.

The current target range for the federal funds rate is 4.25 to 4.50 percent. Adjusting for inflation using the 12-month headline inflation figure yields a real interest rate range of 1.85 to 2.10 percent. If we use the annualized three-month figure (0.8 percent) instead, the range becomes 3.45 to 3.70 percent.

Fed estimates for the natural rate of interest — the real interest rate that equilibrates supply and demand in short-term capital markets — suggest monetary policy is currently tight. The New York Fed estimates the natural rate of interest was between 0.78 and 1.37 percent in 2025:Q1. The Richmond Fed’s median estimate for the same quarter is 1.76 percent. Inflation-adjusted market rates are higher than these estimates using the year-over-year price data, and much higher than these estimates using the annualized three-month data. This certainly looks like restrictive monetary conditions.

We must also consult monetary data. If the money supply is growing faster than money demand, monetary policy is loose; if slower, tight.

The M2 money supply is growing 4.45 percent per year. Broader measures of the money supply, which are liquidity-weighted, are growing between 3.99 and 4.03 percent per year. Money demand, which we estimate by adding population growth (1 percent according to the most recent census figures to real GDP growth (2.06 percent in 2025:Q1), is growing about 3.06 percent per year. It looks like monetary policy is loose because the money supply is growing faster than money demand. 

But remember, the first quarter’s GDP figures were artificially low because of a one-time import spike. A better estimate would incorporate expectations for 2025:Q2. The Wall Street Journal’s average forecast is 0.8 percent next quarter, 0.6 percent in the third quarter, and 1.1 percent in the fourth quarter. Hence it is likely the US economy is currently growing much faster than the 2025:Q1 figure would suggest. Higher real GDP growth means higher money demand growth. We are probably close to neutral, as measured by money supply and money demand.

The new CPI data reinforces recent Personal Consumption Price Index (PCEPI) data: inflation is falling, which makes monetary policy tighter. The Federal Open Market Committee (FOMC) next meets June 17-18, but they are unlikely to loosen policy. FOMC members have indicated they will keep the fed funds target range where it is. Tight money will continue for a while longer.

Restrictive monetary policy is appropriate in some sense. Inflation has been higher than the Fed’s two-percent target for three years. Furthermore, there is a worrying trend that inflation is settling into the 2.25-2.50 percent range. That would be unacceptable. The Fed cannot permit a long-run inflation rate that exceeds its target between 12.5 and 25 percent without losing major credibility.

Yet FOMC members must also worry about the opposite prospect: keeping money too tight for too long risks a recession. Prices, including those embedded in contracts, likely reflect the higher-than-average inflation rates we’ve experienced for the past three years. Should total spending on goods and services prove insufficient to justify those higher prices (due to excessive monetary tightening), the result might be reduced production and rising unemployment.

I would not want to be a central banker right now. Top Fed decision makers have some difficult times ahead. But they wouldn’t be in this situation if they hadn’t bowed to fiscal pressures during the coronavirus pandemic. Today’s frustrating policy tradeoffs reflect yesterday’s short-sighted deviation from sound policy. Until we change how the Fed works at a fundamental level, it will continue to find itself in pickles like this.

AIER’s Everyday Price Index (EPI) posted a 0.18 percent rise in May 2025, reaching 294.3. The index has now recorded six straight months of increases.

Of the twenty-four components making up the EPI, 13 recorded price increases from April to May, while two remained unchanged and nine declined. The most significant upward contributions came from recreational reading materials, tobacco and smoking products, and admissions to movies, theaters, and concerts. On the downside, the largest month-to-month decreases were observed in motor fuel, audio discs, tapes and other media, and intracity transportation services.

AIER Everyday Price Index vs. US Consumer Price Index (NSA, 1987 = 100)

Also on June 11, 2025, the US Bureau of Labor Statistics (BLS) released its May 2025 Consumer Price Index (CPI) data. Both the month-to-month headline CPI and core month-to-month CPI number increased by 0.1 percent, less than the 0.3 percent increase forecast for core inflation and the 0.2 percent projected for the headline number.

May 2025 US CPI headline and core month-over-month (2015 – present)

In May 2025, the all-items Consumer Price Index rose 0.1 percent, driven primarily by a 0.3 percent increase in shelter costs. The food index advanced 0.3 percent, with both food at home and food away from home rising by the same amount. Within food at home, gains were led by cereals and bakery products (+1.1 percent), other food at home (+0.7 percent), and fruits and vegetables (+0.3 percent), while declines were seen in meats, poultry, fish, and eggs (-0.4 percent), nonalcoholic beverages (-0.3 percent), and dairy products (-0.1 percent). The energy index declined 1.0 percent, reflecting a 2.6 percent drop in gasoline prices and a 1.0 percent decrease in natural gas, partially offset by a 0.9 percent increase in electricity costs.

Excluding food and energy, the core index also rose 0.1 percent in May, following a 0.2 percent gain in April. Shelter continued to rise, with owners’ equivalent rent and rent of primary residence both up 0.3 percent, while lodging away from home edged down 0.1 percent. Medical care increased 0.3 percent, supported by hospital services (+0.4 percent) and prescription drugs (+0.6 percent), though physicians’ services fell 0.3 percent. Additional increases were observed in motor vehicle insurance (+0.7 percent), household furnishings (+0.3 percent), personal care (+0.5 percent), and education (+0.3 percent). Offsetting these gains were declines in airline fares (-2.7 percent), used cars and trucks (-0.5 percent), new vehicles (-0.3 percent), and apparel (-0.4 percent).

For the 12 months ending in May 2025, the headline Consumer Price Index increased 2.4 percent, meeting the consensus forecast. The core CPI year-over-year rose 2.8 percent, lower than the 2.9 percent forecast.

May 2025 US CPI headline and core year-over-year (2015 – present)

Over the last year food prices advanced 2.9 percent, with food at home rising 2.2 percent and food away from home up 3.8 percent. Within food at home, the largest increases were in meats, poultry, fish, and eggs (+6.1 percent), driven heavily by a 41.5 percent surge in egg prices. Nonalcoholic beverages rose 3.1 percent, dairy products increased 1.7 percent, other food at home rose 1.4 percent, and cereals and bakery products edged up 1.0 percent, while fruits and vegetables declined 0.5 percent over the year. The energy index fell 3.5 percent year-over-year, with gasoline down 12.0 percent and fuel oil down 8.6 percent, offset in part by increases in natural gas (+15.3 percent) and electricity (+4.5 percent).

Excluding food and energy, the core CPI rose 2.8 percent over the past 12 months. Shelter costs advanced 3.9 percent year-over-year, remaining the largest contributor to core inflation. Other notable annual increases were seen in motor vehicle insurance (+7.0 percent), medical care (+2.5 percent), household furnishings and operations (+2.7 percent), and recreation (+1.8 percent).

US consumer inflation continued to moderate in May, with both headline and core measures undershooting expectations for the fourth consecutive month. Yet beneath the surface, inflation pressures are highly bifurcated. Evidence of tariff pass-through persists in categories heavily exposed to Chinese imports — including appliances, household equipment, toys, and certain electronics — but these gains were offset by widespread disinflation elsewhere. Durable goods prices remained weak, with both new and used car prices declining by 0.3 and 0.5 percent respectively. Services inflation decelerated to 0.2 percent, led by further declines in airfares and hotel rates, as consumer discretionary spending shows signs of softening amid growing income uncertainty. Diffusion measures reflect this divergence: while 41 percent of core categories saw price declines in May, the share of categories rising at an annualized pace above 4 percent climbed to 40 percent, underscoring a complex and uneven inflation backdrop.

Looking ahead, the disinflationary momentum raises the likelihood that the Federal Reserve will remain patient in the near term but face growing pressure to ease policy later this year. Market participants now assign a roughly 75 percent probability of a Fed rate cut by September, as softer inflation prints coincide with early signs of labor market cooling and still-elevated consumer price sensitivities. While temporary trade agreements between the US and China have eased some tariff-related price pressures, risks remain: additional tariff escalations could eventually feed through more forcefully into consumer prices, particularly if inventory buffers shrink. Firms including Walmart, Target, and major automakers have already signaled the likelihood of higher prices ahead. For now, however, the balance of risks continues to tilt toward a gradual disinflation narrative: one that leaves policymakers cautious but not yet compelled to act aggressively.

It comes as no surprise that divorce is harmful for children. Most would likely highlight the emotional strain imposed on children from the loss of normal relations between parents, but harmful effects can be economic. Dividing the family into two households means lower incomes and financially costly negotiations, which could impact children over the long term.

Some argue that bad relations between still-married parents would have the same (or worse) negative impact. By this reasoning, the negative outcomes of divorce are based on the underlying issues that cause the divorce rather than the divorce itself.

A new paper for the National Bureau of Economic Research (NBER) by economists Andrew C. Johnston, Maggie R. Jones & Nolan G. Pope helps adjudicate the question of whether divorce itself is harmful, or if the detrimental effects are merely the result of unhappy parents.

Let’s look at their results.

The Immediate Damage of Divorce

To account for the damage of divorce, the authors highlight several negative changes caused by divorce. First, divorce increases the distance between parents, with the average distance being 100 miles. This limits children’s access to their parents. 

Second, household income falls with the division of the household. This decline in income isn’t made up for by child support. The authors state, “combined, these increases [child support and welfare] in non-taxable income offset less than 10 percent of the drop in average household income.”

As a result of being unable to pool familial resources, parents work more and therefore see children less. They “find that mothers work 8 percent more hours after divorce, and fathers work 16 percent more after divorce.”

Finally, children tend to be relocated, which can be destabilizing, and is made worse by the fact that “divorcing families also move to lower-quality neighborhoods.”

The authors also examine the results of these changes, and they find two additional negative impacts of divorce: increased teen birth rates and increased mortality. These results indicate the immediate economic downside of divorce and how that can negatively impact children, but how do things shake out in the long term?

Long-Term Impacts

Where this new study shines is in examining the long-term impacts of divorce. In order to do this, the authors essentially compare the outcomes of children who are from the same families, but who have different amounts of time being exposed to the divorce.

If two parents got divorced, for example, when their oldest was 15 and their youngest was 5, the oldest would only experience the post-divorce life as a child for 3 years, whereas the youngest would face it for 13 years. 

The results are clear. When parents get divorced when children are younger, those children grow up to have lower incomes, on average. By age 25, someone whose parents got divorced before age six will have approximately $2,500 less annual income (or a nine to 13 percent reduction). The older a child is when the divorce occurs, the less negative the effect becomes. In other words, divorce at early ages means worse long-term outcomes.

Similarly, early childhood divorce increases mortality, and the effect diminishes with age. The same trend holds for increases in teen birth. The results about teen birth and incarceration are particularly alarming:

Experiencing a divorce at an early age increases children’s risk of teen birth by roughly 60 percent, while also elevating risks of incarceration and mortality by approximately 40 and 45 percent, respectively.

In analyzing what about the divorce in particular causes these outcomes, the authors find resource reductions drive a large part of the change in earnings, and the change in neighborhood quality drives the increased incarceration effect.

In other divorce impact studies, critics have a wide lane for critique. When statistics show children of divorce do worse, critics could always argue that there is a selection issue going on. For example, you could say, “It isn’t that divorce has negative impacts, it’s that the people who are more likely to get divorced are going to have other traits or behaviors which impact their children’s outcomes regardless.”

Johnston, Jones, and Pope, however, sidestep this critique by comparing children within the same families. If the thing causing the negative impact wasn’t the divorce itself, the divorce shouldn’t make children in the same family have worse outcomes. But it does. This implies that the divorce itself really is a cause of many of the issues, rather than some hidden underlying factor, as critics like to suggest.

These results shouldn’t be surprising. Parenting is a long-term, team project. Early in childhood, parents make plans and establish routines. These plans and routines lay the foundation for the rest of the child’s life. Like any joint project, whether in family, business, or politics, plans are made because the planning process adds value. Scrapping plans is akin to removing an essential part of the foundation.

When divorce occurs, this foundation crumbles at least in part, if not entirely. Laying a new foundation may not be impossible, but it does tend to be expensive, and this research suggests that children bear much of the cost.

The budget reconciliation legislation recently passed by the House of Representatives, better known as the “One Big Beautiful Bill,” contains several provisions that will benefit taxpayers, but there are opportunities for the Senate to make it even better.

The Senate should remove, for example, a provision in the House bill that would end the longstanding de minimis exemption that waives tariffs for low-cost imports.  

The United States has maintained some form of exemption for low-cost imports for over 100 years. Prior to 1938, the Treasury Department allowed local Customs officials to waive tariffs if they determined that collecting duties on low-value imports would be an inefficient use of federal resources. 

Congress enacted a formal exemption in 1938. The exemption was increased several times over the years. Most recently, in 2016, Congress passed the Trade Facilitation and Trade Enforcement Act, which increased the exemption from tariffs for low-value imports from $200 to $800. This made imports subject to the same rules as the $800 personal exemption for goods Americans bring back when traveling internationally. The legislation projected that increasing the exemption would provide significant economic benefits to businesses and consumers in the United States.

Since then, the Senate has resisted efforts to reduce the exemption for affordable imports. For example, former Finance Committee Chairman Chuck Grassley (R-IA) opposed efforts to reduce the level in implementing legislation for the US-Mexico-Canada Agreement (USMCA), writing that such a change would be contrary to congressional intent. 

When the exemption was increased to $800, no one could have expected the subsequent growth in low-cost imports. The number of goods entering under de minimis status surged from 139 million shipments in 2015 to nearly 1.4 billion in 2024. 

However, most of this growth was unrelated to the increase in the tariff exemption. The average value of a de minimis package in 2023 was just $54, much lower than the current $800 exemption but also much lower than the previous $200 exemption. This is why opponents of de minimis in the House proposed eliminating it instead of just returning it to the previous level. 

Sadly, some opponents of the exemption for low-cost imports have exploited the fentanyl crisis to support their position. For example, the National Council of Textile Organizations says the de minimis exemption impedes the fight against fentanyl trafficking. 

But the Drug Enforcement Administration’s 2025 National Drug Threat Assessment doesn’t contain a single reference to de minimis as a contributor to the fentanyl problem. Requiring the government to devote additional resources to assessing duties on 1.4 billion low-value packages could even divert resources that would be put to better use stopping fentanyl at the US-Mexico border. In any case, all imports, regardless of value, remain subject to US narcotics laws.

Other critics disparagingly refer to the de minimis exemption as a “loophole.” That’s like calling the standard deduction for income taxes a loophole. The de minimis exemption is not a loophole but a policy specifically designed to benefit not just consumers but also manufacturers who rely on affordable imported inputs to produce goods in the United States. 

While many critics of the exemption have focused on Chinese imports, notably, the House bill would impose tariffs on low-cost goods from all countries, not just China. Economist Christine McDaniel estimates that this change could cost Americans $47 billion a year, and economists Pablo Fajgelbaum and Amit Khandelwal found that low-income households would be harmed the most. 

Increasing tariffs on imports from our allies is unwise. And, for those concerned about cheap imports from China, there are ways to reduce reliance on de minimis that don’t involve a big tax increase. For starters, Congress could eliminate tariffs on clothing. The average US tariff on clothing is 14.6 percent. This high tariff encourages consumers to purchase clothing directly instead of from traditional retailers, whose goods are subject to US clothing tariffs. 

Regarding his plans to encourage US manufacturing, President Trump recently observed, “I’m not looking to make T-shirts, to be honest. I’m not looking to make socks.” Getting rid of our clothing tariffs would save families billions and reduce the use of de minimis. 

The Trump Administration has made it a priority to tackle waste, fraud, and abuse. In particular, the DOGE effort focused on getting rid of waste in federal programs and shrinking the federal workforce. 

Terminating the de minimis exemption would undermine President Trump’s efforts to shrink the administrative state. According to Oxford Economics, the cost of limiting the de minimis exemption would be greater than increased revenues generated and would require the government to hire additional workers to assess duties on millions of additional packages. 

The Senate should improve One Big Beautiful Bill by removing the House’s proposal to terminate the de minimis exemption. That would be beautiful for consumers!