The trade war driven by President Donald Trump is no longer just a diplomatic headline. In June, the impact of tariffs began to be felt more clearly in the pockets of American consumers.
According to data released by the Department of Labor, the Consumer Price Index (CPI) rose 0.3% during the month, reaching a year-over-year increase of 2.7%, the highest pace since February.
Although the figure was within analysts’ expectations, several media outlets pointed out that the composition of the increase shows troubling signs. “Prices of products most exposed to tariffs, like home furnishings, jumped 1%, significantly higher than the 0.3% rise last month. Prices for appliances rose 1.9%, and apparel increased 0.4% after several months of declines,” reported The New York Times, noting that these sectors are directly affected by the levies imposed by Trump.
While the president insists that “Consumer Prices \[are] LOW” and once again demanded a drastic three-percentage-point rate cut from the Federal Reserve, economists and monetary authorities are taking a more cautious view.
Federal Reserve members are waiting for more conclusive data on the real impact of the trade war before making any move on interest rates, which have been frozen since January.
According to Stephen Juneau, an economist at Bank of America cited by The New York Times, some companies are already passing tariff costs on to consumers—a difficult decision that can affect their profit margins or competitiveness. Meanwhile, Cornell University professor Eswar Prasad told Financial Times that companies have so far absorbed much of the impact, but that this strategy “is unlikely to be tenable,” especially if Trump follows through with his threat to impose new tariffs starting August 1.
The core CPI, which excludes volatile food and energy prices, also rose in June: 0.2% for the month and 2.9% year-over-year. This data point, seen as a more reliable signal of underlying inflationary pressures, contributed to dampening expectations of an imminent rate cut by the Fed. As Financial Times reported, futures markets adjusted their forecasts and now expect two modest cuts before year-end, but not a major policy shift anytime soon.
The report also showed other pressures: energy prices rose 0.9% in June, driven by increases in electricity (+1%) and gasoline (+1%). Food prices rose 0.3%, with notable increases in coffee (+2.2%) and fruits and vegetables (+0.9%), according to the official report from the Bureau of Labor Statistics.
However, not everything went up. Prices for new and used vehicles fell, as did airline fares and lodging away from home. Still, signs of a possible stagflation scenario—rising prices alongside a stagnant economy—have returned to the radar. “The higher probability of a stagflationary scenario” is rising, warned Juneau, as quoted by The New York Times.
Meanwhile, Treasury Secretary Scott Bessent downplayed concerns about the effects of tariffs, describing warnings of runaway inflation as a “tariff derangement syndrome.”
Oren Klachkin, an economist at Nationwide, said it is still too early to fully measure the impact, but that it could become more visible during the summer. Many companies have tried to mitigate price hikes through containment strategies, but it remains uncertain how long they will be able to hold the line.
What began as a political pressure tool is entering a new phase: one that’s felt in the grocery store, on utility bills, and in the price of a shirt. Inflation remains relatively moderate—for now. But its underlying drivers are shifting. And this may just be the beginning.
With information from AFP