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- The year-over-year inflation rate surged to 2.7% in June from 2.4% in May, surpassing the forecast.Tariff effects were mixed in the new report.The Federal Reserve could use the new reading to help decide whether to change interest rates in late July.
The year-over-year inflation rate climbed to 2.7% in June from 2.4% in May, surpassing the 2.6% expected.
That means that the inflation rate sped up for the second straight month and is getting further away from the Federal Reserve's target of 2%.
The new Bureau of Labor Statistics report comes as businesses brace for potential new tariffs. President Donald Trump once again delayed wide-ranging higher tariff rates that were scheduled to go into effect on July 9. However, Trump sent letters to countries like Japan, South Africa, and Indonesia, stating that their tariffs would start on August 1. Other tariffs, like those on steel and autos, have been in effect.
"The staggered implementation of tariffs should prevent a single month with spiking prices and instead, we can expect this to be the first reading of multiple that shows higher, but not alarmingly high, price increases," Chris Hodge, head economist of the US at Natixis CIB Americas, said in a commentary ahead of the new data.
The consumer price index increased 0.3% from May as expected, exceeding May's increase of 0.1%.
The year-over-year change in core CPI, which excludes volatile food and energy prices, was just under the forecast of 3%. Core CPI rose 2.9% in June, compared to the previous 2.8%. It rose 0.2% over the month, below the 0.3% forecast but above the previous rise of 0.1% in May.
"The slight reacceleration of inflation seen in the June core CPI print will remove any expectation of a July cut, reinforcing the Fed's cautious approach to resuming cuts to its policy rate," Ryan Weldon, investment director and portfolio manager at IFM Investors, said. "There is decent market speculation that the tariff impact will truly begin to show in the July and August data, which would likely raise the threshold for the Fed to cut in September."
Price increases in goods that are more susceptible to tariff effects were mixed. The food, furniture and bedding, and apparel indexes rose from May, while the indexes for new vehicles and used cars and trucks fell over the month.
The food index increased by 0.3% over the month, matching May's increase, and rose 3% over the year, above May's 2.9% rate. The energy index rose 0.9% in June from May after falling 1%, but fell 0.8% over the year.
Shelter increased 3.8% over the year and 0.2% over the month in June. That follows a 0.3% month-over-month increase in both April and May and a 3.9% year-over-year increase in May. While the month-over-month rise in shelter was less than the previous gain, the new Bureau of Labor Statistics said it was the primary factor in the overall monthly increase.
Alberto Musalem, president of the Federal Reserve Bank of St. Louis, said last week it's too soon to know whether tariffs will have a temporary or persistent effect on inflation. New York Fed's survey of consumer expectations showed median household expectations for inflation one year ahead slowed from 3.6% in March and April to 3.2% in May and 3% in June.
The next Federal Open Market Committee meeting is in two weeks, in which members will discuss what to do with interest rates based on inflation, the job market, and other data. CME FedWatch showed, based on interest rate traders, that there's an overwhelming chance the Federal Reserve will hold interest rates steady. Data published at the start of July showed unemployment is still fairly low and even fell from 4.2% to 4.1% in June. However, labor force participation also dropped, wage growth cooled, and long-term unemployment rose.
