CPI Comes In Hotter Than Expected
U.S. inflation surged past forecasts in June, with the Consumer Price Index (CPI) rising 2.7% year-over-year, up from May’s 2.4%, according to the Bureau of Labor Statistics (BLS). This uptick was driven by rising costs in shelter, food, energy, and household items, putting the Federal Reserve’s long-awaited rate cut in September into question.
On a monthly basis, the CPI rose by 0.3%, the largest monthly increase since January. Meanwhile, core inflation—which excludes food and energy—came in at 2.9% year-over-year, just below analyst forecasts of 3%, but still well above the Fed’s 2% target.
Shelter, Food, and Core Goods Lead the Climb
Shelter remains the biggest contributor to inflation, though it slowed to a 0.2% monthly rise. Over the past 12 months, shelter costs jumped 3.8%, with owner-equivalent rents rising 0.3%. Lodging away from home saw a notable dip, falling 2.9%.
Other categories added to the heat. Food prices rose 0.3% in June and are now up 3% annually. Energy prices rebounded, posting a 0.9% monthly gain, despite being slightly lower than a year ago. In contrast, vehicle prices dropped, with new car prices down 0.3% and used cars falling 0.7%.
Apparel, affected by trade tensions, rose 0.4%, while household furnishings saw a 1% surge—the biggest among core goods. Meanwhile, medical care services ticked up 0.6%, and transportation services rose by 0.2%.
Trump Says Inflation Is “Dead”—But Economists Disagree
Despite the data, President Donald Trump remained confident, telling reporters:
But economists are not as optimistic. Many believe the tariff-heavy policies under the Trump administration are putting upward pressure on inflation. The Yale Budget Lab noted that U.S. tariff rates are now at 18.7%—the highest since 1933.
Existing levies include 30% tariffs on Chinese goods, 50% on steel and aluminum, and 25% on auto parts. A 10% base tariff applies to most other imports. Trump has also threatened new hikes, including 30% tariffs on the EU and Mexico, 35% on Canada, and up to 50% on Brazil—a potential political retaliation linked to former Brazilian president Jair Bolsonaro.
Markets Still Hopeful for September Cut
George Goncalves, head of U.S. macro strategy at MUFG, told Bloomberg that while the CPI report was firm, it was in line with expectations.
Despite the stronger inflation reading, markets haven’t ruled out a Federal Reserve rate cut later this year. Currently, there’s only a 5% chance of a cut in July, but expectations for September remain alive. Investors are watching how the Fed digests the inflation data amid trade uncertainty and fiscal expansion under the Trump administration.
