Fortune 500 giants Nike and Walmart are warning of upcoming price hikes, but tariff-wary Americans are already pulling back on spending

Tayfun Coskun/Anadolu via Getty ImagesA key inflation gauge moved higher in May in the sign that prices remain stubbornly elevated while Americans also cut back on their spending last month

Prices rose 2. 3% in May compared with a year ago, up from just 2. 1% in April, the Commerce Department said Friday

The Fed tracks core inflation because it typically vides a better guide to where inflation is headed

At the same time, Americans cut back on spending for the first time since January, as overall spending fell 0

Incomes dropped a sharp 0

Both figures were distorted by one-time changes: Spending on cars plunged, pulling down overall spending, because Americans had moved more quickly to buy vehicles in the spring to get ahead of tariffs

And incomes dropped after a one-time adjustment to Social Security benefits had boosted payments in March and April

Social Security payments were raised for some retirees who had worked for state and local governments

Still, the data suggests that growth is cooling as Americans become more cautious, in part because President Donald Trump’s tariffs have raised the cost of some goods, such as appliances, tools, and audio equipment

Consumer sentiment has also fallen sharply this year in the wake of the sometimes-chaotic rollout of the duties

And while the unemployment rate remains low, hiring has been weak, leaving those without jobs struggling to find new work

And spending on services ticked up just 0. 1% in May, the smallest montly increase in four and a half years. “Because consumers are not in a strong enough shape to handle those (higher prices), they are spending less on recreation, travel, hotels, that type of thing,” said Luke Tilley, chief economist at Wilmington Trust

Spending on airfares, restaurant meals, and hotels all fell last month, Friday’s report showed

At the same time, the figures suggest that President Donald Trump’s broad-based tariffs are still having only a modest effect on overall prices

The increasing costs of some goods have been partly offset by falling prices for new cars, airline fares, and apartment rentals, among other items

On a monthly basis, in fact, inflation was mostly tame

Prices rose just 0. 1% in May from April, according to the Commerce Department, the same as the previous month

Economists point to several reasons for why Trump’s tariffs have yet to accelerate inflation, as many analysts expected

There are early indications that that is beginning to change

Nike announced this week that it expects U

It will institute “surgical” price increases in the fall

It’s not the first retailer to warn of price hikes when students are heading back to school

Walmart said last month that that its customers will start to see higher prices this month and next as back-to-school shopping goes into high gear

Also, much of what the U

Imports is made up of raw materials and parts that are used to make goods in the U

It can take time for those higher input costs to show up in consumer prices

Economists at JPMorgan have argued that many companies are absorbing the cost of the tariffs, for now

Doing so can reduce their fit margins, which could weigh on hiring

Cooling inflation has put more of a spotlight on the Federal Reserve and its chair, Jerome Powell

With price increases now nearly back to the Fed’s target, some economists — and some Fed officials — say that the central bank could reduce its rate back to a level that doesn’t slow or stimulate growth

Trump has also repeatedly attached the Fed for not cutting rates, calling Powell a “numskull” and a “fool. ” But Powell said in congressional testimony earlier this week that the Fed wants to see how inflation and the economy evolve before it cuts rates

Most other Fed policymakers have expressed a similar view

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