Investors are more pessimistic about a rate cut.
The inflation rate as measured by the Consumer Price Index (CPI) rose to 2.7% in June, up from 2.4% in May.
This marks the second straight month that the index has risen, after three consecutive months of declines. The increases coincide with the tariffs placed on foreign imports by President Donald Trump in April.
And with new 35% tariffs for Canada and 30% tariffs for the EU and Mexico – three of the U.S.’s biggest trading partners – starting August 1, it could lead to even higher prices.
For the month of June alone, the inflation rate increased 0.3%. That’s up from 0.1% in May and represents the biggest jump since 0.5% in February.
The monthly gain and 12-month rate were both in line with economists’ expectations.
Core inflation, which excludes food and energy prices, jumped 0.2% in June, up from 0.1% in May. This was below economists’ expectations of 0.3%. The core CPI rose 2.9% over the past 12 months, up from 2.8% in May. But this was also below estimates of 3.0%.
“While tariff-related pressures are beginning to show in select goods categories in the PCE, the overall passthrough into CPI remains limited for now as firms hold off on retail price hikes,” said Josh Hirt, senior U.S. economist at Vanguard. “We continue to expect core CPI to average 0.3% m/m through year-end, ending 2025 at 3.5%.”
Food costs increase
Food costs rose 0.3% in June and 3.0% over the past year, up from 2.9% in May. Food away from home spiked 0.4% in June and 3.8% over the past year, while food at home rose 0.3% in June and 2.4% year-over-year.
Specifically, three of the six major grocery store food group indexes increased in June. Nonalcoholic beverages rose 1.4%, coffee increased 2.2%, and fruits and vegetables rose 0.9% with citrus fruits jumping 2.3%.
On the flip side, cereals and bakery products declined 0.2%, while meats, poultry, fish, and eggs fell 0.1% with a 7.4% decrease in the price of eggs. Also, dairy and related products decreased 0.3% in June.
Within food away from home, the index for full-service meals rose 0.5% in June while the index for limited service meals, like fast food, increased 0.2%.
Investors more pessimistic about a rate cut
Energy prices jumped 0.9% in June, the biggest leap since December. But they still remain down 0.8% from June of 2024. Gasoline and fuel oil each rose 1.0% in June, but are down 8.3% and 4.7%, respectively year over year.
Electricity prices also increased 1% and have risen 5.8% over the past year, while natural gas prices increased 0.5% in June and have skyrocketed 14.2% over the past year.
Elsewhere, the shelter index increased 0.2% in June with owners’ equivalent rent rising 0.3% and rent increasing 0.2%. Shelter costs are up 3.8% year over year. However, lodging away from home index fell 2.9% in June.
Indexes that increased in June include household furnishings and operations, up 1.0%; recreation, up 0.4%; apparel, up 0.4%; and personal care, up 0.3%. The indexes for used cars and trucks, new vehicles, and airline fares were among the major indexes that decreased in June. Used cars and trucks prices fell 0.7%, the new vehicles index fell 0.3%, and the airline fares index declined 0.1%.
Investors grew more pessimistic about the FOMC lowering interest rates in July after this CPI report. According to CME FedWatch, 97.4% of interest rate traders expect the Fed to keep rates where they are in July, up from 93.8% earlier in the week.
