Trump’s tariffs are starting to hit consumers’ wallets: Inflation climbs to 2.7% in June

The U.S. economy is closely watching the effects of Donald Trump’s tariff swings on its key indicators — especially one: inflation. The data for June was released this Tuesday and had been highly anticipated as the clearest evidence yet of what the U.S. president’s erratic and aggressive trade policy is doing to consumers’ wallets and hopes for a soft landing of the economy.

The results were not good: the Consumer Price Index rose to 2.7% in June compared to the previous year, according to figures released Tuesday by the Bureau of Labor Statistics, part of the Department of Labor. Core inflation — which excludes the volatile prices of food and energy — was 2.9%. Both numbers matched analysts’ forecasts.

These analysts, who correctly predicted that inflation would rise a notable 0.3% from May’s 2.4%, had stressed the importance of the June reading, as they believed this would be the first point at which the tariffs would truly begin to show their effects, after months of Trump’s threats, back-and-forth moves, and last-minute reversals.

Economists believe that the impact on inflation had been delayed until now due to companies selling off inventory stockpiled before tariffs took effect, and hesitation around passing higher costs on to consumers. June’s data suggests that cost transfers have now begun.

The inflation announcement follows strong June jobs data that exceeded expectations, and comes just a week after Trump revived his plans to impose tariffs on imports from dozens of countries, notifying them by letter. In addition to a universal 10% tariff imposed during a pause in the trade war — which has now been extended through August 1 — sector-specific tariffs are already in effect: a 50% duty on steel and aluminum (which will extend to copper in about three weeks), and a 25% tariff on the auto sector.

Some of the goods most sensitive to the imposition of tariffs saw price increases: furniture and household supplies rose by 1%, toys by 1.8%, and clothing by 0.4%. New car prices, on the other hand, fell by 0.3%. Gasoline became 1% more expensive in June, and electricity also rose by 1%, while natural gas increased by 0.5%.

Pressure on Powell

The inflation figure moves even further away from the Federal Reserve’s 2% price stability target. The Fed’s monetary policy committee — which has a dual mandate to control inflation and aim for full employment — meets in a few weeks, and investors widely expect it to hold interest rates steady at their current level of 4.25%-4.50%, despite ongoing pressure and hostile remarks aimed at its chair, Jerome Powell, from Trump and his allies.

Trump enjoys mocking the Fed chair as “Too Late Powell” for his refusal to adjust interest rates and for his habit of following a “wait and see” approach before making decisions. In recent statements, Trump has claimed that the Fed should cut rates by “three points” — a dramatic and exaggerated demand not supported by any analysts.

Powell, appointed by Trump during his first term, is guaranteed to remain in office until May 2026, but the search for his replacement has already begun, along with a campaign to force his resignation over cost overruns in the renovation of the Fed’s headquarters. Originally budgeted at $1.9 billion, the project has ended up costing $2.5 billion.

Amid the political tension and economic uncertainty, the futures market strongly expects the Federal Reserve to keep interest rates unchanged at its July 30 meeting. However, it sees a 0.25 percentage point rate cut as the most likely outcome at the following meeting on September 17. According to data from the FedWatch tool, as of Tuesday, there was a 97.5% probability of the former and a 59.9% probability of the latter.

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