June Inflation Rates Climb Higher, Potentially Impacted by Tariffs
In a recent report, the annual inflation rate for June was found to be slightly higher than expected. This increase is thought to be a result of decreased gasoline prices being offset by increased grocery store prices. Economists are speculating that President Trump’s tariff agenda may have a significant impact on consumer prices in the coming months.
How Tariffs Could Impact Inflation
President Trump’s tariffs have been gradually impacting the U.S. economy and there’s now a growing risk of further escalation. Over the weekend, Trump announced that tariffs of 30% will be imposed on the European Union and Mexico from the beginning of August. He also threatened “secondary tariffs” on Russia’s trade partners, which could be as high as 100%. These tariffs are essentially a tax on imports paid by U.S. companies. If this impacts businesses negatively, they may pass on some of this additional cost to consumers by raising prices.
Senior economist at Wells Fargo, Sarah House, believes that while businesses have managed to mitigate price increases so far, this will become increasingly difficult as pre-tariff stockpiles dwindle. She predicts that core goods prices will rise further in the second half of the year. Other economists are of the same view and expect the full effect of tariffs on pricing to become evident by the end of the year.
White House economic advisor Kevin Hassett argues that the new tariff policies have not been as inflationary as expected because consumers are buying more American-made goods. However, Mark Zandi, chief economist at Moody’s, warns that “inflation is going to kick into a much higher gear in the coming months.”
Long-term Inflation Expectations
Despite the accelerating inflation, long-term expectations are somewhat muted. Stephen Kates, a financial analyst at Bankrate, doesn’t believe the current situation will mirror 2022’s spike in inflation to 9.1%. He states that consumers are still grappling with the shock of rising prices, and this memory continues to affect their spending.
June’s Mixed Inflation Signals
The month of June saw some mixed signals in inflation rates. Grocery prices were slightly higher, while meats, poultry, fish, and egg prices saw a considerable jump. However, egg prices were still lower than the previous month. On the other hand, housing inflation increased slightly over the month, making it the largest contributor to overall CPI gain.
Gasoline prices saw a minor increase, but are still lower compared to last year. Prices for used cars and trucks, as well as airline fares, declined in June. Despite these cross currents, the net effect is a general tilt towards higher inflation. Core inflation, which excludes energy and food prices, was up by 2.9% in June.
Please note, there was an error in the initial report stating that egg prices had fallen by 7.4% from the previous month.
