The Federal Reserve’s preferred measure of inflation edged upward last month, signaling that President Donald Trump’s broad tariffs are beginning to push prices higher on many goods.
According to the Commerce Department, prices increased 2.6% in June compared to a year earlier, up from a 2.4% annual pace in May. When excluding food and energy—two typically volatile sectors—core prices rose 2.8% over the past year, unchanged from May after revision. Both figures exceed the Fed’s 2% inflation target.
This rise in inflation partly explains why the Federal Reserve refrained from cutting its main interest rate this week, despite Trump’s repeated calls for a rate reduction. On Wednesday, the Fed held its benchmark rate steady at 4.3%, with Chair Jerome Powell noting it could take months to assess whether tariffs are causing a temporary price spike or a longer-lasting inflation trend.
Trump has frequently criticized Powell, and on Thursday, he renewed attacks, calling the Fed Chair “TOO ANGRY, TOO STUPID, & TOO POLITICAL” to hold his position.
Month-over-month, prices grew 0.3% from May to June, with core prices also rising 0.3%, both above levels consistent with the Fed’s inflation goal.
Harry Chambers, assistant economist at Capital Economics, commented that the above-target increase in core prices, revised data for earlier months, and a sharp rise in core goods inflation would reinforce the Fed’s concerns about tariff-driven inflation. “If these trends continue, a September rate cut seems unlikely,” he said.
Fuel prices jumped 0.9% from May to June, while grocery prices rose 0.3%. Several durable goods, often imported, showed notable price hikes—furniture rose 1.3%, appliances increased 1.9%, and computer prices climbed 1.4% last month.
Conversely, some service costs declined, helping offset some inflationary pressure. Airfares fell 0.7% between May and June, and hotel rates dropped sharply by 3.6% in the same period.
The report also showed consumer spending rose modestly by 0.3% from May to June, indicating cautious spending habits among Americans. After adjusting for inflation, the real increase was only 0.1%.
Income growth was similarly modest, rising 0.3% last month following a 0.4% decline in May. When adjusted for inflation and taxes, incomes remained flat in June.
Consumers have been careful throughout the year. Recent government data revealed the economy grew at a 3% annual rate in the second quarter—a solid figure that hides some concerns. Consumer spending advanced at a slow 1.4% pace after just a 0.5% rise in the first quarter. A significant drop in imports during April to June, following a surge in the previous quarter, boosted GDP calculations.
Earlier this month, government data also showed a rise in the consumer price index—the primary inflation gauge—due to increased costs of imported goods like appliances, furniture, and toys.
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