U.S. inflation rises amid tariff concerns
U.S. consumer prices experienced a notable increase in June, signaling the potential onset of inflation driven by tariffs. The Labor Department's Consumer Price Index rose by 0.3%, marking the largest monthly gain since January. Despite this uptick, underlying inflation remained moderate, with consumer prices advancing 2.7% annually, slightly above expectations. The core inflation rate, excluding food and energy, rose to 2.9% annually.
President Donald Trump responded to the report by asserting that consumer prices were low and urged the Federal Reserve to lower interest rates. The anticipated inflationary effects of Trump's tariffs have made the Fed cautious about resuming interest rate cuts, especially following soft inflation readings earlier in the year. Economists noted that consumer prices had been slow to reflect the impact of the tariffs, as businesses were still selling off inventory accumulated before the duties were implemented.
The report indicated that tariff-driven price increases were evident in various sectors, including apparel, household furnishings, and appliances. Analysts warned that the effects of the tariffs are just beginning, with studies suggesting that import tariffs have raised prices by approximately 3%, with additional ripple effects on domestic supply chains.
The Federal Reserve is expected to maintain interest rates at 4.25% to 4.5% during its upcoming policy meeting, with markets pricing in a nearly 97% chance of this decision. While some Fed members are open to future rate cuts, Chair Jerome Powell emphasized the need for more clarity on the impacts of tariffs before making policy shifts.
Politically, the inflation data supports both the White House's economic narrative and critics' concerns about the negative effects of tariffs on consumers. The report led to higher treasury yields and briefly affected equity markets, although some investors shifted focus to strong sector-specific earnings.
