Tariff costs passed on to consumers, U.S. inflation rate rises to 2.7% in June
The U.S. inflation rate rose to 2.7% in June, up from 2.4% in the previous month, mainly driven by businesses passing tariff costs on to consumers. Imported goods prices led the increase, with clothing, household goods, and appliance prices rising 0.4%, 1%, and 1.9%, respectively. The report reinforced the Federal Reserve's stance on holding interest rates steady, but Trump and some Fed officials are divided over rate cuts.
Key Points
- U.S. inflation rose month-over-month in June as companies passed tariff costs to consumers, reinforcing the Federal Reserve's stance to keep borrowing costs unchanged this year while assessing the impact of the Trump administration's trade and other policy adjustments.
- Data released Tuesday by the U.S. Bureau of Labor Statistics showed thatthe Consumer Price Index rose 2.7% year-over-year in June, up from 2.4% in the previous month, still well above the Fed's 2% inflation target. Imported goods led the gains in June, with prices for clothing, household furnishings, and appliances rising 0.4%, 1%, and 1.9%, respectively.
- Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, said in a client note that the report is "a blow to those who deny that tariffs are pushing up inflation." He said "the tariff costs are obvious," noting that core goods prices excluding food, energy, and autos rose 0.5%, the largest gain in three years.
Deeper Analysis
The latest sign that inflation remains above the Fed's target has led interest-rate futures traders to almost fully rule out a cut to the federal funds rate at the central bank's July 29-30 policy meeting,the CME FedWatch toolshowed traders raised the probability of holding rates steady to 97% from 94% on Monday.
The inflation report may do little to settle the debate among policymakers over whether import tariffs will cause a one-off or persistent price pressure.
The BLS said price increases in services and other categories remained moderate in June, with airline fares falling 0.1% and lodging prices down 2.9%.
Rents rose only 0.23%, slightly above May's 0.21%, which was the smallest gain since mid-2011. Additionally, BLS data showed new vehicle prices fell 0.3% in June, while used cars and trucks declined 0.7%.
Fed Chair Jerome Powell and other policymakers are inclined to resume cutting key interest rates only after confirming that import tariffs will not trigger higher inflation in the months ahead.
"The continued solid overall state of the economy allows the Fed to calmly assess a broad range of new data,"Boston Fed President Susan Collinssaid in a speech Tuesday. "Therefore, in my view, maintaining an 'actively patient' stance on monetary policy remains appropriate."
Meanwhile, two Fed governors appointed by President Donald Trump said this month that tariff-driven inflation will fade and expressed openness to considering a cut to the benchmark rate as early as the next meeting.
Trump has for weeks pressured Powell to lower the federal funds rate, saying it would help reverse the federal government's rising borrowing costs.
"Consumer prices are very low. Cut Fed rates immediately, now!!!" Trump said in a social media post Tuesday after the inflation data was released. He has repeatedly said Powell should slash the federal funds rate, currently in the 4.25%-4.5% range, by as much as 3 percentage points.
The calls from Trump and White House officials to lower borrowing costsdrew criticism Tuesday from JPMorgan Chase CEO Jamie Dimon。
"I think the independence of the Fed is crucial," Dimon said after the bank reported quarterly earnings, according to The Wall Street Journal. "Interference in the Fed could have adverse consequences, possibly even the exact opposite of what you expect."