US consumer prices experienced their most significant increase in five months during June, climbing 0.3 per cent for the month and 2.7 per cent compared to the previous year. This development comes as the Federal Reserve prepares for a policy meeting later this month, where it is widely expected to maintain its benchmark overnight interest rate within the 4.25 per cent to 4.50 per cent range. The central bank will be looking at this latest data when considering monetary policy.
Analysts suggest that tariffs are beginning to influence core goods prices. Seema Shah from Principal Asset Management noted increases in categories like household furnishings, recreation, and apparel, indicating that import levies are gradually affecting prices. TD Securities echoed this view, highlighting more evident signs of pass-through from tariffs to goods inflation, particularly those heavily exposed to Chinese imports. Pantheon Macroeconomics anticipates a total 1 per cent uplift to overall consumer prices from existing tariffs.
Bank of America stated that the June CPI print was close enough to market expectations that markets treated it as a non-event. However, they noted the potential for a bigger reaction following Wednesday’s PPI print. Evercore ISI indicated that a Federal Reserve rate cut in September remains a possibility, contingent on tariff developments.
The Fed will analyse upcoming data from July and August to better understand the impact of tariff policies and their pass-through to inflation, alongside labour market data, before making any decisions regarding potential rate cuts in September or delaying further into the year. Pantheon Macroeconomics cautioned that the risks are skewed towards a bigger uplift in consumer prices if additional reciprocal rates are implemented.
