US inflation set to rise in June as tariffs begin to drive up prices

United States inflation is expected to show a noticeable uptick in June, with new data likely confirming that President Donald Trump’s sweeping import tariffs are beginning to feed through into consumer prices. Economists told Reuters that the long-anticipated impact of tariffs on inflation had so far been delayed, as companies sold off pre-tariff inventories and hesitated to pass on higher costs.

But that cushioning effect is now fading, with price hikes expected to spread more broadly in the coming months. The US Labour Department’s Consumer Price Index (CPI) report, due Tuesday, is forecast to show a 0.3 per cent increase in June, after a subdued 0.1 per cent gain in May, the largest monthly rise since January.

Gasoline and tariff-hit goods push prices higher

According to Reuters, the June CPI rebound is expected to reflect higher petrol prices after four consecutive months of declines, as well as price rises for tariff-sensitive goods such as furniture and recreational items.

Sarah House, senior economist at Wells Fargo, told Reuters that, “The June CPI report is likely to show inflation beginning to strengthen again, albeit not enough to alarm Fed officials at this juncture. While inventory front-running has mitigated the need to raise goods prices, it will become increasingly difficult for businesses to absorb higher import duties as pre-tariff stockpiles dwindle". Retailers, including giants like Walmart, have already warned of price increases as the full impact of Trump’s tariff policies begins to bite.

Trump’s tariff plan stokes inflation fears

President Trump last week confirmed that new, higher tariffs will come into effect from August 1, targeting imports from major trading partners including Mexico, Japan, Canada, Brazil and the European Union. Economists say the impact of these new duties will likely extend the period of elevated inflation into the second half of the year.

Stephen Stanley, chief US economist at Santander US Capital Markets, told Reuters that, “Anecdotal reports suggest that tariff-related price hikes began to finally grow in frequency in June, but I expect the bulk of the impact to come in July and August.”

Headline and core inflation both warming

For the 12 months through June, annual CPI inflation is forecast to have risen 2.7 per cent, up from 2.4 per cent in May. Core CPI, which excludes volatile food and energy components is also expected to post its biggest monthly increase since January, with a 0.3 per cent rise in June compared to 0.1 per cent in May.

Reuters reports that economists see tariff-linked price pressures building in goods categories like consumer electronics, automobiles, and apparel, while services inflation is expected to remain more subdued.

Fed likely to hold rates steady — for now

Despite signs of rising price pressures, most analysts say the Federal Reserve is unlikely to be alarmed just yet. The central bank is widely expected to hold its benchmark overnight interest rate in the 4.25%–4.50% range at its policy meeting later this month. Minutes of the Fed’s June 17–18 meeting, published last week, showed only “a couple” of officials saw scope to cut rates as soon as the late-July meeting.

Veronica Clark, an economist at Citigroup, told Reuters that even if goods inflation strengthens, the Fed would likely be reassured by contained services inflation that, “This should keep Fed officials comfortable lowering rates in September even if there is some stronger inflation data in the next few months.”

Outlook: Tariff impact to intensify

Investment bank Goldman Sachs is forecasting core CPI inflation to increase 0.3%–0.4% monthly over the next few months, driven by tariff-related price hikes. However, the bank expects a limited near-term impact on core services inflation.

This tariff-fuelled inflation backdrop leaves the Federal Reserve in a tricky spot: wary of cutting rates too quickly and reigniting inflation, but also mindful of slowing economic growth and consumer spending pressures.