Fed's Inflation Fears Start to Be Realised with June CPI Increase  

• Rising prices across an array of goods pulled inflation higher in June 2025 in what economists see as evidence of the Trump administration's increasing import taxes passing through to consumers. Overall, consumer prices rose 0.3% in June 2025, a roughly 3.5% annual rate, after a 0.1% increase in May 2025. Notably, core inflation increased at a 2.9% annual rate in June, slightly below the 3% consensus forecast, but slightly faster than in May. Meanwhile, food and energy costs both increased, pushing headline inflation up to 2.7% from 2.4% the prior month.
• Economists and Fed officials say they were expecting inflation to gather pace this summer as the lagged impact of tariffs gets passed along by businesses, and the June 2025 data suggests central bank policymakers may remain reluctant to cut interest rates until more information is at hand. The tariff price shock could ultimately prove a temporary, one-time adjustment. But with the final tariff levels still being considered by President Donald Trump, and steeper levies threatened as of August 1, the inflation outlook remains unsettled.
• Head of Inflation Insights, Omair Sharif, stated that "Today's report showed that tariffs are beginning to bite, …apparel prices rose, household furnishing prices jumped ... and recreation commodities increased." These are heavily imported items and the increases were substantial. Prices for audio-video equipment rose 1.1% over the month and have risen 11.1% on a year over year basis, the largest jump ever in a category where globalization had generally meant steady or falling prices.
• It will likely strike a note of caution for the Fed, which has been facing almost daily criticism from Trump for not cutting interest rates, a step central banker have been reluctant to take until it is clear where the tariffs will leave the U.S. economy. In a speech in Washington Tuesday, Federal Reserve Bank of Boston President Susan Collins warned that she continues to expect the rise in import taxes to push up inflation while pushing down growth and employment. But she added strong balance sheets on both the business and household sides may help absorb the hit and lessen its impact.

(Source: Reuters)