Inflation saw an uptick in June, moving further from the Federal Reserve’s target rate as central bank officials prepare for their upcoming meeting later this month. President Donald Trump continues to press for interest rate cuts, adding more political weight to the economic discussions.
The Bureau of Labor Statistics reported on Tuesday that the consumer price index (CPI) increased by 0.3% in June compared to May and climbed 2.7% over the past year. These figures exceeded economists’ expectations, which projected slightly lower growth.
Core inflation, which excludes volatile food and energy prices, rose 0.2% monthly and 2.9% annually. While these numbers were modestly below forecasts, they still reflected an acceleration from May’s figures.
Food prices also contributed to the overall rise, with a 0.3% monthly increase and a 3% jump over the year. Grocery costs rose 0.3% while dining out was up 0.4%. Notably, egg prices fell 7.4% in June, continuing their decline after last year’s avian flu surge, though they remain nearly 27% higher than a year ago. Meat, poultry, and fish prices climbed 0.8% in June and are now 4.1% higher annually.
Energy costs reversed course, rising 0.9% in June after a 1% drop in May. Gasoline and electricity prices edged upward, while natural gas saw a 0.5% increase. Over the year, energy costs are down overall, but electricity and natural gas prices are significantly higher.
Housing costs continued to be a major driver of inflation, with shelter prices increasing 0.2% for the month and 3.8% annually. Transportation costs rose 0.2% in June, with motor vehicle insurance prices up 6.1% year-over-year, even as airline fares slipped slightly.
The June CPI report arrives as the Federal Reserve weighs potential interest rate cuts amid uncertainty over tariffs introduced under Trump’s administration. Fed Chair Jerome Powell recently stated that rate cuts earlier this year were delayed due to concerns about tariff-driven price increases.
Economists warn that the tariffs may already be impacting inflation. Ellen Zentner of Morgan Stanley said that goods exposed to tariffs are showing signs of price acceleration, while services inflation is moderating.
Kay Haigh of Goldman Sachs added that price pressures are expected to grow over the summer, making upcoming CPI reports crucial for determining the Fed’s next moves.
Following the report, markets now overwhelmingly believe the Fed will keep interest rates steady at their current range of 4.25% to 4.5% during this month’s meeting. The odds of no rate change increased from 93.8% to 97.4%, according to CME’s FedWatch tool.
As the Fed remains cautious, all eyes are on whether the central bank will resume its easing cycle later in the year if inflation stabilizes.
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