Inflation picked up noticeably in June as tariffs started to make their mark on consumer prices. The Consumer Price Index (CPI) rose by 2.7% from a year earlier, up from 2.4% in May. Core inflation, which excludes the more volatile food and energy categories, also edged higher, climbing to 2.9% from 2.8% the previous month.
Much of this increase can be traced to goods that are particularly sensitive to import duties. Prices for toys jumped 1.8%, appliances rose 1.9%, and home furnishings increased by 1%. As companies face mounting costs tied to these tariffs, their initial efforts to shield consumers by absorbing expenses are proving harder to sustain, especially as profit margins narrow.
Earlier in the year, many firms built up inventories to get ahead of the higher tariffs. This stockpiling temporarily softened the impact on prices. But these reserves are now being drawn down, making it increasingly difficult for businesses to avoid passing on higher costs to consumers. As a result, we could see core goods inflation drift higher over the second half of the year.
But, the inflationary impact of tariffs is likely to be limited. With consumers becoming more cautious about spending and the job market starting to lose some momentum, the recent price increases are expected to be gradual rather than dramatic. Moreover, tariffs typically act as a one-time bump in prices, rather than fueling an ongoing upward spiral — the hallmark of sustained inflation.
A key factor keeping broader inflation in check is the continued cooling in housing costs, which make up about a third of the CPI. Shelter prices rose just 0.2% in June, slowing noticeably from a 0.4% pace in January. This persistent deceleration in rental and housing costs should help restrain overall price growth.
One of the more surprising elements in the latest report was the decline in both new and used car prices. This challenges the narrative that consumers, faced with the rising cost of new vehicles, have been flocking to used cars and driving up their prices. It suggests that demand for vehicles may not be as robust as previously thought.
Looking ahead, if the acceleration in prices seen in June continues, it could complicate the Federal Reserve’s plans to cut interest rates. Policymakers may opt to keep borrowing costs elevated for longer to ensure inflation doesn’t regain a stronger foothold. This would affect everything from mortgage rates to stock market valuations, potentially slowing economic momentum.
Overall, while inflation is showing signs of reawakening under the pressure of tariffs, the broader backdrop of a softening labor market and easing shelter costs suggests that price gains should remain contained — at least for now.
By Sung Won Sohn
The author is professor of finance and economics at Loyola Marymount University and president of SS Economics. He was executive vice president at Wells Fargo Banks and senior economist on the President’s Council of Economic Advisors in the White House.
