NEW YORK (Reuters) -U.S. consumer prices rose slightly in May as gasoline prices remained subdued, but inflation is likely to pick up in the months as tariffs boost the cost of imported goods.

The consumer price index CPI increased 0.1% last month after rising 0.2% in April, the Labor Department said on Wednesday. Economists polled by Reuters had forecast the CPI would rise 0.2%. Year on year, the CPI climbed 2.4%, vs a 2.3% rise in the 12 months through April.

Excluding the volatile food and energy components, the CPI rose 0.1% after gaining 0.2% in April. The so-called "core" CPI inflation increased 2.8% on a year-on-year basis in May after rising 2.8% in April.

Inflation data has been slow to reflect U.S. President Donald Trump's slew of tariffs as retailers are selling merchandise that was built up before the levies took effect.

MARKET REACTION:

STOCKS: U.S. stock index futures erased earlier declines and were last up 12 points, or 0.2%, pointing to a modestly higher open on Wall Street

BONDS: The 10-year U.S. Treasury yield fell 4.2 basis points to 4.432% while the two-year yield declined 6.5 basis points to 3.947%

FOREX: The dollar index reversed modest gains and was off 0.2% to 98.76 while the euro was up 0.39% at $1.1467

COMMENTS:

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK:

"We had good news on the inflation front. It came in lower than expected, and I guess the key point is there is still no trace of Trump's tariffs impacting inflation for the moment. However, I don't think it will change the tone of the Fed... but in terms of imminent news, this is good and positive for the markets."

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN:

"The post from Trump about the trade deal with China threatened to suck the air out of the importance of this CPI number. A 55% tariff on China does not seem like a good deal for households and businesses in America, but it was slightly better than the 60% tariff platform he campaigned on.

"The CPI number was a lot tamer than expected. A lot of imported food items had relatively high inflation, like bananas rising 3.3% in price and toy prices rising 2.2%. Egg deflation is taking place with prices falling 2.7%. A little stability with trade policy could go a long way to help keep inflation from derailing. This is another example of why the Fed may shift its balance of risks to focusing more on growth threats than inflation threats."

SLAWOMIR SOROCZYNSKI, HEAD OF FIXED INCOME, CROWN AGENTS INVESTMENT MANAGEMENT, LONDON:

"The CPI printing lower has been a relief. Now we need to clear the 10-year and 30-year Treasury auctions this week and then the market can switch into holiday mode."

GENNADIY GOLDBERG, HEAD OF US RATES STRATEGY, TD SECURITIES, NEW YORK:

"The trade policy should still push inflation higher and that really feeds into the market reaction to this CPI print. I would say CPI came in notably better than expected for markets, with both headline and core surprising to the downside. Core goods were softer than expected, especially given weaker apparel prices. Core services were also relatively soft as well, with rents and OER coming in notably lower.

"All in all, this should drive a cautious bull steepening of the (Treasury) yield curve as investors pencil in more cuts. But there's still significant uncertainty around trade and investors know that that should push inflation higher in the months to come. It's a bit of stay of execution for the fixed income market for now."

WASIF LATIF, PRESIDENT AND CHIEF INVESTMENT OFFICER, SARMAYA PARTNERS, PRINCETON, NEW JERSEY:

"It came in lower than consensus expected. So it's giving a little bit of a relief rally to the market, between equities rallying and bond yields coming down. But that's the initial reaction but we would see how it comes through over the next few days, weeks and until next month's print.

"It's just one print and we have to take that into consideration and with a grain of salt and see how things pan out. There will continue to be impacts from things like tariffs and labor tightness because of immigration crackdown.

"The other component is the energy piece. It did contribute a little better than expected numbers, with energy being down. And now this past month, you're seeing energy to hold its own and continue to grind higher so that also needs to be taken in consideration.

"But net-net, it's a good number for this week and this month. It provides a little bit of relief. What's interesting is not only are you seeing equities jump here a little bit you're also seeing the US dollar decline because the markets is interpreting that it gives the Fed a little of a runway to reduce rates to the inflationary pressures that aren't there. The thing that is rallying the most on this news is gold."

(Compiled by the Global Finance & Markets Breaking News team)