US inflation accelerates to 2.6% as tariffs increase Goods prices by the biggest margin since January
inflation increased in June as tariffs boosted prices for imported goods like household furniture and recreation products, supporting views that price pressures would pick up in the second half of the year and delay the Federal Reserve from resuming cutting interest rates until at least October.
The report from the Commerce Department on Thursday showed goods prices last month posting their biggest gain since January, with also solid rises in the costs of clothing and footwear.
The US central bank on Wednesday left its benchmark interest rate in the 4.25 per cent-4.50 per cent range and Fed chairman Jerome Powell’s comments after the decision
undercut confidence the central bank would resume policy easing in September as had been widely anticipated by financial markets and some economists.
“The Fed is unlikely to welcome the inflation dynamics currently taking hold. Rather than converging toward target, inflation is now clearly diverging from it,” said Olu Sonola, head of US economic research, Fitch Ratings. “This trajectory is likely to complicate current expectations for a rate cut in September or October.”
The personal consumption expenditures (PCE) price index rose 0.3 per cent last month after an upwardly revised 0.2 per cent gain in May, the Commerce Department’s Bureau of Economic Analysis said.
Economists polled by Reuters had forecast the PCE price index climbing 0.3 per cent following a previously reported 0.1 per cent rise in May.
Prices for furnishings and durable household equipment jumped 1.3 per cent, the biggest gain since March 2022, after increasing 0.6 per cent in May. Recreational goods and vehicles prices shot up 0.9 per cent, the most since February 2024, after being unchanged in May. Prices for clothing and footwear rose 0.4 per cent.
Outside the tariff-sensitive goods, prices for gasoline and other energy products rebounded 0.9 per cent after falling for four consecutive months. Services prices rose 0.2 per cent for a fourth straight month. In the 12 months through June, the PCE price index advanced 2.6 per cent after increasing 2.4 per cent in May.
The data was included in the advance gross domestic product report for the second quarter published on Wednesday, which showed inflation cooling, though remaining above the Fed’s 2 per cent target. Economists said businesses were still selling inventory accumulated before President Donald Trump’s sweeping import duties came into effect.
They expected a broad increase in goods prices in the second half. Procter & Gamble said this week it would raise prices on some products in the US to offset tariff costs.
The US central bank tracks the PCE price measures for monetary policy. Excluding the volatile food and energy components, the PCE price index increased 0.3 per cent last month after rising 0.2 per cent in May. In addition to higher goods prices, the so-called core PCE inflation was lifted by rising costs for healthcare as well as financial services and insurance.
In the 12 months through June, core inflation advanced 2.8 per cent after rising by the same margin in May.
Consumer spending steady
The BEA also reported that consumer spending, which accounts for more than two-thirds of economic activity, rose 0.3 per cent in June after being unchanged in May. The data was also included in the advance GDP report, which showed consumer spending growing at a 1.4 per cent annualised rate after almost stalling in the first quarter.
In the second quarter, economic growth rebounded at a 3.0 per cent rate, boosted by a sharp reduction in the trade deficit because of fewer imports relative to the record surge in the January-March quarter. The economy contracted at a 0.5 per cent pace in the first three months of the year.
Consumer spending remains supported by a stable labour market, with other data from the Labor Department showing initial claims for state unemployment benefits rose 1000 to a seasonally adjusted 218,000 for the week ended July 26.
But a reluctance by employers to increase headcount amid uncertainty over where tariff levels will eventually settle is making it harder for those who lose their jobs to find new opportunities, which could hamper future spending.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, was unchanged at a lofty seasonally adjusted 1.946 million during the week ending July 19, the claims report showed.
The government’s closely watched employment report on Friday is expected to show the unemployment rate rising to 4.2 per cent in July from 4.1 per cent in June, according to a Reuters survey of economists.
Tariffs boosted prices for imported goods like household furniture and recreation products, bolstering the case for the Fed to delay rate cuts.
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