Inflation shows biggest rise in five months, amid only scattered signs of tariff effects
Story by Jeffry Bartash
The numbers: Consumer prices in June posted the biggest increase since the beginning of the year and are likely to keep the Federal Reserve from cutting interest rates later this month, but there were only scattered signs of tariff-related inflation.
The consumer-price index rose 0.3% last month, the government said Tuesday, and matched Wall Street’s forecast. It was the biggest rise since January.
Higher gasoline prices and the cost of shelter drove the bulk of the increase in inflation last month. There were only scattered signs of rising prices from the Trump administration’s tariffs.
As a result, the crucial core rate of inflation rose a more modest 0.2% in June. The core rate strips out food and gas and is viewed by the Fed as a better predictor of future inflation trends.
Expand article logo Continue reading
The overall rate of inflation in the past year climbed to 2.7% from 2.4% in the prior month.
The yearly increase in the core CPI moved up to 2.9% from 2.8%.
The Fed is aiming to return inflation to the low prepandemic levels of 2% or less, but the central bank’s effort has been complicated by the highest U.S. tariffs in decades.
Tariffs could stoke more inflation depending on how high they are raised and how long they are kept in place. Yet many economists and top Fed officials now believe the effect on inflation is likely to prove small and short-lived.
Key details: The biggest source of inflation in June was rent and housing, the single biggest expense for most people.
Still, shelter costs only rose 0.2% last month. That’s a smaller increase than what has been typical over the past few years.
Energy prices — mainly the cost of oil — also rose 0.9% and reversed most of the decline in the prior month.
The cost of food rose faster than usual for the fourth time in the past six months, possibly a residue of tariffs on agricultural goods.
Tariff-related increases also appeared to show up in June in the cost of clothing, footwear, furniture, appliances and toys.
None of those goods show big increases over the past year, however.
Prices fell for new and used vehicles, hotels and airfares.
Big picture: Higher inflation stemming from tariffs had been expected to show up in June, but it only manifested in dribs and drabs. Inflation is still fairly tame compared with a few years ago and doesn’t appear likely to spike again.
Even so, most senior Fed officials seem content to wait for further confirmation from inflation reports for July and August before deciding to reduce borrowing costs again. They also want to wait to see how trade negotiations play out before a key Aug. 1 White House deadline.
Investors believe the first reduction in interest rates this year will come in late September.
President Donald Trump and his key allies, meanwhile, are keeping the pressure on the Fed to cut rates given the relatively low rate of inflation. Trump has repeatedly called for Fed Chair Jerome Powell to resign.
Looking ahead: “If it’s true that inflation is staying in check, then the Fed can go ahead and cut interest rates — potentially as early as September,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management.
“But if subsequent reports show a different story, then the Fed is going to have to stay on hold even longer.”
https://www.msn.com/en-us/money/mar...ered-signs-of-tariff-effects/ar-AA1IE2XO
