June inflation expected to show tariff-driven uptick as Trump escalates trade threats

Yahoo

2 days ago

June's Consumer Price Index (CPI) is expected to show prices rose at a faster clip compared to May. The report, due Tuesday at 8:30 a.m. ET, comes as investors closely monitor whether President Trump's tariffs are starting to filter through to what consumers pay, even as inflation data has so far remained more resilient than expected.
According to Bloomberg data, headline CPI is expected to have increased 2.6% year over year in June, up from a 2.4% rise in May. On a monthly basis, prices are forecast to climb 0.3%, marking an acceleration from the 0.1% gain the prior month.
On a "core" basis, which strips out volatile food and energy prices, the annual inflation rate for June is expected to come in at 2.9%, a slight pickup from May's 2.8%. Core prices are also projected to climb 0.3% month over month, outpacing the previous 0.1% rise seen in May.
In May, falling car and apparel prices, categories seen as early indicators of tariff impacts, contributed to a cooler-than-expected core CPI reading. But economists expect those trends to reverse in June, potentially pushing core inflation higher.
Read more: How to protect your savings against inflation
The report lands amid renewed trade tensions between the US and other countries. President Trump has unveiled new letters to over 20 countries outlining tariffs ranging from 20% to 50%, including a 35% duty on Canadian goods and 30% tariffs on imports from Mexico and the European Union.
He has also floated sweeping 15% to 20% tariffs on most trading partners. The EU, in response, is scrambling to negotiate while preparing potential countermeasures.
The back-and-forth raises fresh questions about the Federal Reserve's rate-cutting path. Markets still expect the central bank to hold rates steady at its policy meeting in two weeks, largely due to uncertainties on how tariffs will trickle through to prices.
"The June CPI report is likely to show inflation beginning to strengthen again, albeit not enough to alarm Fed officials at this juncture," Wells Fargo economist Sarah House wrote in a note.
"The next three months will mark a key stretch of inflation data," she added, noting that while inventory front-running has so far limited price hikes, "it will become increasingly difficult for businesses to absorb higher import duties as pre-tariff stockpiles dwindle."
Wells Fargo expects core goods prices to continue rising in the second half of the year as those buffers wear off, although House noted the pass-through to consumers may be limited: "Amid a softer labor market and services inflation dissipating a bit more, the pickup in core inflation stemming from tariffs is likely to look more like a bump than a spike."
Bank of America economists Stephen Juneau and Jeseo Park also expect core CPI inflation to accelerate, driven by a rebound in used car prices and broad-based hikes likely linked to tariffs. On the services side, they see inflation firming due to rising medical costs, travel-related prices, and stronger shelter price increases.
And Goldman Sachs echoed similar concerns, writing, "Going forward, tariffs will likely provide a somewhat larger boost to monthly inflation," while projecting core CPI gains of 0.3% to 0.4% in the coming months.
The firm expects a sharp pickup in core goods inflation but sees only limited effects on services. Still, Goldman anticipates inflation pressures to ease later this year as housing and labor market dynamics cool.
Allie Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at [e-mail].
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