Consumer prices increase as expected in June
by Reuters reuters · KSL.comKEY TAKEAWAYS
- Consumer prices rose 0.3% in June, marking the largest gain since January.
- The CPI increased 2.7% year-over-year, aligning with economist predictions of 2.6%.
WASHINGTON — U.S. consumer prices picked up in June, likely marking the start of a long-anticipated tariff-induced increase in inflation that has kept the Federal Reserve cautious about resuming its interest rate cuts.
The Consumer Price Index increased 0.3% last month after edging up 0.1% in May, the Labor Department's Bureau of Labor Statistics said on Tuesday. That was the largest gain since January. In the 12 months through June, the CPI advanced 2.7% after rising 2.4% in May.
Economists polled by Reuters had forecast the CPI would climb 0.3% and increase 2.6% on a year-over-year basis.
Inflation readings came in on the low side in February through May, leading to demands by President Donald Trump for the U.S. central bank to lower borrowing costs. Economists said inflation has been slow to respond to the sweeping import duties Trump announced in April because businesses were still selling stock accumulated before the tariffs came into effect.
Last week, Trump announced higher tariffs for imports from various countries, including Mexico, Japan, Canada and Brazil, and the European Union effective Aug. 1, raising the effective tariffs rate. Economists expect higher goods prices to prevail through the summer.
Excluding the volatile food and energy components, the CPI rose 0.2% in June after edging up 0.1% in the prior month. In the 12 months through June, core CPI inflation increased 2.9% after rising 2.8% for three straight months.
Strong price increases for goods, however, could be somewhat offset by moderate rises in services costs, and ease concerns of a broad-based rise in inflationary pressures. Soft demand has limited price increases for services-related categories like air fares, as well as hotel and motel rooms.
The Fed tracks different inflation measures for its 2% target. The central bank is expected to leave its benchmark overnight interest rate in the 4.25%-4.50% range at a policy meeting later this month. Minutes of the central bank's June 17-18 meeting, which were published last week, showed only "a couple" of officials said they felt rates could fall as soon as the July 29-30 meeting.
Goldman Sachs is forecasting monthly core CPI inflation increases of between 0.3%-0.4% over the next few months, reflecting tariff-related increases in the prices of consumer electronics, autos and apparel. The investment bank expects limited near-term impact on core services inflation.
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