Inflation, as indicated by the Federal Reserve’s key measure, rose from 2.3% to 2.6% in June, driven by rising costs linked to President Trump’s tariffs. This shift is influencing the economy in significant ways.
The Commerce Department’s personal consumption expenditure (PCE) price index recorded a bump that surpassed economists’ forecasts of a 2.5% rise. When excluding the more volatile categories of food and energy, the index showed an annual increase of 2.8%.
Economists had anticipated that tariffs would spur some price growth, particularly in certain markets.
“Core products are likely to show notable growth because of tariffs, especially in areas like household furniture and equipment, recreational items, clothing, and automotive parts,” commented an analyst from Vanguard.
Meanwhile, inflation indicators continue to track upward, with the Consumer Price Index (CPI) reflecting an annual increase of 2.7% in June. Tariff-sensitive categories like apparel, electronics, and furniture contributed to this rise.
The CPI has shown consecutive gains, climbing from 2.3% in April to its current level.
This week, the Fed maintained short-term interest rates within the range of 4.25-4.5%. Chairman Jerome Powell explained earlier this month that tariffs are a key factor preventing any interest rate cuts.
Various forces impacting the economy are somewhat obscured by the tariff-related price effects. This is especially clear in the services and housing sectors. Notably, the inflation rate for shelter within the CPI, which usually dampens overall numbers, decreased to a 3.8% annual increase, down from higher levels observed in March and April.
“We’ve observed some real advancements in the inflation metrics we’ve been focusing on recently,” stated Claudiatherm, the chief economist for New Century Advisor and a former Fed economist, in an interview with Hill. “Changes in housing services are dragging down non-residential services—important elements in CPI. You’re looking at monthly rates that are either at or below pre-pandemic levels.”
