Credit: Envato Elements
Inflation picked up pace in June, raising concerns that the long-predicted economic effects of President Donald Trump’s tariff strategy are beginning to materialize.
The U.S. Labor Department reported that consumer prices rose 2.7% over the past 12 months, the highest annual rate since February. The increase was driven by higher costs for housing, food, and gasoline, and aligns with economic forecasts that import tariffs would eventually raise prices for American consumers.
“June’s report marks a turning point where tariffs are now materially visible in key consumer categories,” said Daniel Hornung, senior fellow at MIT and former deputy director of the National Economic Council. “But this is unlikely to be the last inflationary impact. As inventories of untaxed imports are depleted, businesses will increasingly pass costs on to consumers.”
Tariff Effects Showing in Consumer Categories
While inflation had cooled earlier this year—dropping to 2.3% in April—it has since resumed an upward trend, rising to 2.4% in May and now reaching 2.7% in June.
Notable increases in tariff-sensitive categories include:
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Apparel: +0.4%
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Furniture: +1%
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Video and audio equipment: +1.1%
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Toys: +1.8%
These figures suggest that import taxes, particularly the broad 10% tariff now in place on most goods, are beginning to filter through to consumer prices.
Upcoming Tariff Increases May Intensify Pressure
Since taking office, President Trump has enacted a series of tariffs targeting major trade partners. While some were postponed, new rounds are scheduled to take effect August 1, including:
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A 35% tariff on many Canadian imports
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A blanket 15% to 20% tariff on most other countries
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A 30% tariff on all goods imported from Mexico and the European Union
Economists widely expect these moves to exert additional upward pressure on prices throughout the fall.
Federal Reserve Holds Steady — For Now
The Federal Reserve continues to monitor inflation closely. The core inflation rate, which excludes volatile food and energy prices, rose to 2.9% year-over-year in June. The Fed’s target remains a more modest 2%.
Despite the uptick, the Fed has kept its benchmark interest rate in a range of 4.25% to 4.5% throughout 2025 and is not expected to cut rates at its July meeting, according to most analysts.
“A rate cut is possible later this year but not assured,” said Bill Adams, chief economist at Comerica Bank. “The Fed wants to understand how tariffs will affect pricing before making a move.”
The Fed has signaled the possibility of two rate cuts before the end of the year, particularly if inflation stabilizes and economic growth slows.
Political Pressure Builds
President Trump has continued to press Fed Chair Jerome Powell to lower rates, but Powell has reaffirmed the Fed’s commitment to data-driven decisions independent of political influence.
Economists and market analysts note that, absent the tariffs, inflation might have returned to the Fed’s 2% target. “Were it not for the tariff shock, US inflation would likely have hit the Fed’s 2% target this year,” said Seema Shah, chief global strategist at Principal Asset Management.
Outlook
The 2.7% inflation rate is not yet cause for alarm, but it represents a clear turning point. As new tariffs come into effect in August and retailers adjust prices accordingly, further inflation increases are possible.
Consumers, businesses, and policymakers alike will be watching closely in the months ahead to determine whether this is the start of a more sustained inflationary trend fueled by trade policy.
