TLDR
- June inflation expected to rise to 2.6% year-over-year, up from 2.4% in May, driven by Trump’s escalating tariff threats
- Core inflation projected to reach 3% annually, the largest jump this year as tariff effects begin filtering through to consumer prices
- Trump has unveiled tariffs ranging from 20% to 50% on over 20 countries, including 35% on Canada and 30% on Mexico and EU
- Economists expect goods prices to rise as businesses can no longer absorb higher import costs from dwindling pre-tariff stockpiles
- Federal Reserve closely monitoring data before September meeting, with rate-cutting path now uncertain due to tariff-driven inflation concerns
June’s Consumer Price Index report is expected to show inflation jumped to 2.6% year-over-year, marking the largest increase this year. The Bureau of Labor Statistics will release the data Tuesday at 8:30 a.m. Eastern time.
The projected rise from May’s 2.4% reading comes as President Trump’s tariff threats begin filtering through to consumer prices. Core inflation, which excludes volatile food and energy costs, is forecast to reach 3% annually, up from 2.8% in May.
Monthly price gains are expected to accelerate to 0.3% in June, tripling May’s 0.1% increase. This represents what economists call an “inflection point” in the inflation battle, with progress on reducing prices now stalling.
Trump has unveiled new tariff letters to over 20 countries outlining duties ranging from 20% to 50%. The plan includes a 35% tariff on Canadian goods and 30% levies on imports from Mexico and the European Union.
The president has also discussed sweeping 15% to 20% tariffs on most trading partners. The EU is scrambling to negotiate while preparing potential countermeasures in response to the trade threats.
In May, falling car and apparel prices helped keep inflation cooler than expected. Economists expect those trends to reverse in June, potentially pushing core inflation higher as tariff effects take hold.
Businesses Running Out of Buffer Time
Wells Fargo economist Sarah House noted that while inventory front-running has limited price hikes so far, “it will become increasingly difficult for businesses to absorb higher import duties as pre-tariff stockpiles dwindle.” The next three months will mark a key stretch of inflation data.
Bank of America economists expect core CPI inflation to accelerate, driven by rebounding used car prices and broad-based hikes likely linked to tariffs. On the services side, they see inflation firming due to rising medical costs and travel-related prices.
Goldman Sachs projects core CPI gains of 0.3% to 0.4% in coming months. The firm expects a sharp pickup in core goods inflation but sees only limited effects on services initially.
Federal Reserve Weighing Rate Decisions
The inflation data comes as the Federal Reserve prepares for its policy meeting in two weeks. Markets expect the central bank to hold rates steady due to uncertainties about how tariffs will affect prices.
Tuesday’s CPI report is the first of three that will be released before the Fed’s September 16-17 meeting. All three reports will influence committee members’ views on tariff-related costs and their decisions on interest rates.
The labor market today is no longer overheated compared to the post-pandemic period. This means that even with more cost pressures on goods, services inflation might remain relatively controlled.
Morgan Stanley economist Diego Anzoategui expects the firmer core result for June will come from continued price increases in furniture, appliances, and electronics. These categories already showed signs of “tariff push” in May’s data.
Apparel remains a wildcard sector despite being vulnerable to tariffs. Adobe data shows online apparel prices were down 7.7% year-over-year in June, suggesting mixed signals across different goods categories.
Citi economist Veronica Clark noted that softening consumer demand could help limit how much tariffs get passed through to final prices this year. The June CPI data will be released Tuesday morning with economists surveying a 2.6% year-over-year increase.
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