Consumer prices rose in June as President Donald Trump’s tariffs began to slowly work their way through the U.S. economy.
The consumer price index, a broad-based measure of goods and services costs, increased 0.3% on the month, putting the 12-month inflation rate at 2.7%, the Bureau of Labor Statistics reported Tuesday. The numbers were right in line with the Dow Jones consensus, though the annual rate is the highest since February and still above the Federal Reserve’s 2% target.
Excluding volatile food and energy prices, core inflation picked up 0.2% on the month and an annual rate of 2.9%, with the annual rate in line with estimates. The monthly level was slightly below the outlook for a 0.3% gain.
Before June, inflation had been on a generally downward slope for the year, with the headline CPI at a 3% annual rate back in January and progressing gradually slower in the subsequent months despite fears that Trump’s trade war would drive prices higher.
While the evidence in June was mixed on how much influence tariffs had over prices, there were signs that the duties are having an impact.
Vehicle prices fell on the month, with prices on new vehicles down 0.3% and used car and trucks tumbling 0.7%. However, tariff-sensitive apparel prices rose 0.4%. Household furnishings, which also are influenced by tariffs, increased 1% for the month.
Shelter prices increased just 0.2% for the month, but the BLS said the category was still the largest contributor to the overall CPI gain. The index rose 3.8% from a year ago. Within the category, a measurement of what homeowners feel they could receive if they rented their properties increased 0.3%. However, lodging away from home slipped 2.9%.
“It’s really hard to point to this report or any details in the report and say, ‘Aha! See what’s happened to prices because of tariffs,'” said Dan North, senior economist at Allianz Trade North America. “You get these pretty massive tariff increases. It’s bound to pass through to the consumers, and I still think it will, but it’s not in this report so far.”
Trump used the report to initiate another call for the Fed to lower interest rates.
“Consumer Prices LOW. Bring down the Fed Rate, NOW!!!” the president posted on Truth Social. He later added: “Fed should cut Rates by 3 Points. Very Low Inflation. One Trillion Dollars a year would be saved!!!”
Mixed bag of indicators
Price pressures came from a variety of sources, while other areas eased.
Food prices increased 0.3% for the month, putting the annual gain at 3%, while energy prices reversed a loss in May and rose 0.9%, though they are still down marginally from a year ago. Medical care services were up 0.6%, while transportation services edged higher by 0.2%.
With the rise in prices, inflation-adjusted hourly earnings fell 0.1% in June, the BLS said in a separate release. Real earnings increased 1% on an annual basis.
Markets largely took the inflation report in stride. Stock market futures were mixed while Treasury yields were mostly negative.
Amid the previously muted inflation ratings, Trump has been urging the Federal Reserve to lower interest rates, which it has not done since December. The president has insisted that tariffs are not aggravating inflation, and has contended that the Fed’s refusal to ease is raising the costs the U.S. has to pay on its burgeoning debt and deficit problem.
Central bankers, led by Chair Jerome Powell, have refused to budge. They insist that the U.S. economy is in a strong enough position now that the Fed can afford to wait to see the impact tariffs will have on inflation. Trump in turn has called on Powell to resign and is certain to name someone else to the job when the chair’s term expires in May 2026.
Markets expect the Fed to stay on hold when it meets at the end of July and then cut by a quarter percentage point in September.
