The Federal Reserve’s preferred inflation gauge showed an uptick last month, indicating that President Donald Trump’s tariffs are significantly contributing to rising prices for various consumer goods across the United States.
Data released by the Commerce Department revealed a 2.6% increase in prices in June compared to a year ago, accelerating from the 2.4% annual pace observed in May. When volatile food and energy sectors are excluded, core inflation registered a 2.8% rise year-over-year, consistently above the Federal Reserve’s 2% target.
This persistent inflationary pressure partly explains the central bank’s decision to maintain its key interest rate at 4.3% this week, despite considerable pressure from the former President to implement a rate cut. Fed Chair Jerome Powell indicated that several months might be needed to assess whether the impact of import duties signifies a transient price surge or a more enduring inflationary trend.
On a monthly basis, prices increased by 0.3% from May to June, with core prices also experiencing a similar rise. These monthly figures surpass levels consistent with the Fed’s long-term 2% inflation target. According to Harry Chambers, assistant economist at Capital Economics, these “above-target” increases, coupled with upward revisions to past data and a sharp rise in core goods inflation, will only amplify the Fed’s concerns regarding tariff-driven inflation.
The report highlighted clear price escalations in heavily imported, longer-lasting goods. Furniture prices advanced by 1.3% in June alone, appliances saw a 1.9% increase, and computers rose by 1.4%. Additionally, gasoline prices jumped 0.9% and grocery costs rose 0.3% during the same period, directly affecting household budgets.
Conversely, the cost of certain services saw notable declines, partially mitigating the broader price pressures from goods. Airfares decreased by 0.7%, and hotel room rates plunged by 3.6% within the single month. Despite these mixed signals, consumer spending showed a modest 0.3% rise from May to June, suggesting American households are exercising caution.
When adjusted for inflation, consumer spending increased by a mere 0.1%, underscoring the restrained economic activity. Similarly, Americans’ incomes saw a modest 0.3% uptick last month, rebounding from a 0.4% drop in May, but remained flat in June once inflation and taxes were accounted for. This cautious consumer behavior aligns with a broader economic expansion in the second quarter that, while solid, revealed underlying red flags like a lackluster 1.4% rise in consumer spending.
This trend is further corroborated by earlier government reports, which indicated that the more closely-watched Consumer Price Index (CPI), the primary inflation measure, also ascended in June. This rise was notably driven by increasing costs of heavily-imported items such as appliances, furniture, and toys, reinforcing the impact of trade policies on domestic prices.
