Key Points
- U.S. inflation increased in June, driven by higher prices for imported goods due to tariffs.
- The Federal Reserve is now less likely to cut interest rates before October.
- Prices for goods like furniture, clothing, and recreational products all saw solid gains.
- The Fed’s preferred inflation measure, the PCE price index, rose 0.3% last month.
U.S. inflation picked up in June, with prices for imported goods like furniture and clothing rising due to new tariffs. This supports the view that inflation will likely increase in the second half of the year, making it less likely that the Federal Reserve will cut interest rates before October.
The Commerce Department’s report on Thursday showed that goods prices saw their biggest jump since January. This follows a statement from the Fed on Wednesday that it was holding interest rates steady. Fed Chair Jerome Powell’s comments after the meeting also dampened expectations for a rate cut in September.
“The Fed is unlikely to welcome the inflation dynamics currently taking hold,” said one analyst. “Rather than converging toward the target, inflation is now clearly diverging from it.”
The personal consumption expenditures (PCE) price index, which is the Fed’s preferred measure of inflation, rose 0.3% last month. Prices for furnishings jumped 1.3%, and recreational goods shot up 0.9%.
Economists believe the full impact of the tariffs hasn’t even hit yet, as many businesses are still selling off inventory they bought before the new duties took effect. Major companies like Procter & Gamble have already said they will be raising prices to offset the tariff costs.
Consumer spending, a key driver of the economy, held steady in June. However, with the labor market showing some signs of slowing down, economists expect consumer spending to weaken in the coming months.
