U.S. consumer prices picked up in June, likely marking the start of a long-anticipated tariff-induced increase in inflation that has kept the Federal Reserve cautious about resuming its interest rate cuts.
The Consumer Price Index increased 0.3 per cent last month after edging up 0.1 per cent in May, the Labor Department’s Bureau of Labor Statistics said on Tuesday. That was the largest gain since January. In the 12 months through June, the CPI advanced 2.7 per cent after rising 2.4 per cent in May.
Economists polled Reuters had forecast the CPI would climb 0.3 per cent and increase 2.6 per cent on a year-over-year basis.
Inflation readings came in on the low side in February through May, leading to demands by President Donald Trump for the U.S. central bank to lower borrowing costs. Economists said inflation has been slow to respond to the sweeping import duties Trump announced in April because businesses were still selling stock accumulated before the tariffs came into effect.
Trump last week announced higher tariffs would come into effect on August 1 for imports from a range of countries, including Mexico, Japan, Canada and Brazil, and the European Union effective August 1, raising the effective tariffs rate. Economists expect higher goods prices to prevail through the summer.
Excluding the volatile food and energy components, the CPI rose 0.2 per cent in June after edging up 0.1 per cent in the prior month. In the 12 months through June, core CPI inflation increased 2.9 per cent after rising 2.8 per cent for three straight months.
Strong price increases for goods, however, could be somewhat offset by moderate rises in services costs, and ease concerns of a broad-based rise in inflationary pressures. Soft demand has limited price increases for services-related categories like air fares as well as hotel and motel rooms.
The Fed tracks different inflation measures for its 2 per cent target. The central bank is expected to leave its benchmark overnight interest rate in the 4.25 per cent-4.50 per cent range at a policy meeting later this month. Minutes of the central bank’s June 17-18 meeting, which were published last week, showed only “a couple” of officials said they felt rates could fall as soon as the July 29-30 meeting.
Goldman Sachs is forecasting monthly core CPI inflation increases of between 0.3per cent-0.4per cent over the next few months, reflecting tariff-related increases in the prices of consumer electronics, autos and apparel. The investment bank expects limited near-term impact on core services inflation.