US inflation accelerated last month to highest level since February

Al Arabiya

2 days ago

Inflation rose last month to its highest level in four months as the cost of gas, food, and groceries rose, reversing several months of cooling price pressures. Consumer prices rose 2.7 percent in June from a year earlier, the Labor Department said Tuesday, up from an annual increase of 2.4 percent in May. On a monthly basis, prices climbed 0.3 percent from May to June after rising just 0.1 percent the previous month. Worsening inflation poses a political challenge for President Donald Trump, who promised during last year's presidential campaign to immediately lower costs. The sharp inflation spike of 2022-2023 was the worst in four decades and soured most Americans on former president Joe Biden's handling of the economy. Higher inflation will also likely heighten the Federal Reserve's reluctance to cut its short-term interest rate as Trump is loudly demanding.
Excluding the volatile food and energy categories, core inflation increased 2.9 percent in June from a year earlier, up from 2.8 percent in May. On a monthly basis, it picked up 0.2 percent from May to June. Economists closely watch core prices because they typically provide a better sense of where inflation is headed.
Inflation likely accelerated in June as sweeping tariffs on nearly all imports may have pushed up prices for electronics, appliances, and other goods, economists forecast. Consumer prices probably rose 2.6 percent last month from a year ago, up from an annual increase of 2.4 percent in May, according to data provider FactSet. The Labor Department will issue its inflation report at 8:30 a.m. eastern. On a monthly basis, prices likely rose 0.3 percent from May to June, the largest increase since January, economists project. Worsening inflation could pose a political challenge for President Donald Trump, who promised during last year's presidential campaign to immediately lower costs. The sharp inflation spike of 2022-2023 was the worst in four decades and soured most Americans on former president Joe Biden's handling of the economy. Faster price increases would also likely underscore the Federal Reserve's reluctance to cut its short-term interest rate as Trump is loudly demanding.
Excluding the volatile food and energy categories, inflation is forecast to have risen 3 percent in June from a year earlier, up from a 2.8 percent rise in May. On a monthly basis, it is also expected to have picked up 0.3 percent from May to June, according to FactSet. Economists closely watch core prices because they typically provide a better sense of where inflation is headed. Trump has imposed sweeping duties of 10 percent on all imports, plus 50 percent levies on steel and aluminum, 30 percent on goods from China, and 25 percent on imported cars. Just last week, the president threatened to hit the European Union with a new 30 percent tariff starting Aug. 1.
So far, the tariffs haven't noticeably pushed up inflation, which has been mild for the past four months. Core inflation has fallen from 3.3 percent in January to 2.8 percent in May, though that is still above the Fed's 2 percent target. If inflation in June is much weaker than economists forecast, Trump will likely renew his demands that Federal Reserve Chair Jerome Powell immediately reduce borrowing costs. Powell and other Fed officials have emphasized that they want to see how the economy evolves as the tariffs take effect before cutting their key short-term rate. The Fed chair has said that the duties could both push up prices and slow the economy–a tricky combination for the central bank since higher costs would typically lead the Fed to hike rates while a weaker economy often spurs it to reduce them. Trump on Monday said that Powell has been terrible and doesn't know what the hell he's doing. The president added that the economy was doing well despite Powell's refusal to reduce rates, but it would be nice if there were rate cuts because people would be able to buy housing a lot easier.
Last week, White House officials also attacked Powell for cost overruns on the years-long renovation of two Fed buildings, which are now slated to cost 2.5 billion, roughly one-third more than originally budgeted. While Trump legally can't fire Powell just because he disagrees with his interest rate decisions, the Supreme Court has signaled he may be able to do so for cause, such as misconduct or mismanagement. While inflation was mild in May, there were already signs in last month's report that tariffs were starting to have some impact. The cost of furniture, appliances, toys, and tools rose, though those increases were offset by falling prices for airfares, hotels, and muted rises in rental costs. Some companies have said they have or plan to raise prices as a result of the tariffs, including Walmart, the world's largest retailer. Automaker Mitsubishi said last month that it was lifting prices by an average of 2.1 percent in response to the duties, and Nike has said it would implement surgical price hikes to offset tariff costs.
But many companies have been able to postpone or avoid price increases after building up their stockpiles of goods this spring to get ahead of the duties. Other companies may have refrained from lifting prices while they wait to see whether the US is able to reach trade deals with other countries that lower the duties.