Getty Images
Annual inflation accelerated in June, climbing to its highest level since February, fueled by rising housing costs and higher prices of basic staples like gas and groceries.
Consumer prices increased by 2.7% last month from a year earlier, up from 2.4% in May, according to the U.S. Labor Department’s consumer price index (CPI) data released on Tuesday.
Core inflation, which excludes food and energy and is considered a better measure of underlying inflation, reached 2.9% annually, up from 2.8% in May.
On a monthly basis, overall prices edged up 0.3% from May to June, while core prices ticked up 0.2%.
“June’s numbers mark a slight shift from May’s cooler-than-expected inflation data, but it remains unclear if and when the U.S. economy will feel the true brunt of a slew of new tariffs,” says Realtor.com® Senior Economist Jake Krimmel.
The impact of President Donald Trump’s tariffs on foreign imports was most acutely felt in the category of household furnishings, which saw prices jump 1% month-over-month—the biggest increase since January 2022.
Other heavily tariff-exposed goods, including toys, large appliances, clothing, shoes and sporting equipment all experienced price hikes from last month.
“It is worth noting that June’s figures do not reflect the most recent round of tariff announcements, including a new copper tariff that could affect housing construction in the months ahead,” points out Krimmel, predicting that building materials may begin to show signs of tariff-driven price pressures in the coming months
As is typical, housing—termed “shelter”—was the “primary” monthly inflation driver, rising 0.2% from May to June—a sign of continued normalization.
The annual cost of rent increased 3.8%, the most modest year-over-year increase since late 2021.
The prices for food at home rose 0.3 in June, while food away from home, meaning restaurants, ticked up 0.4% on a monthly basis. Notably, the Trump administration has recently imposed a 17% tariff on Mexican tomatoes.
The energy index edged up 0.9% in June, as gasoline prices jumped 1% over the month but shed 7.9% for the year.
In good news for consumers, new car prices fell 0.3% month-over-month, used cars and trucks decreased 0.7% in June, and airline fares inched down 0.1%, helping rein in the overall inflation.
How is the Fed going to react?
With the Federal Reserve’s next policy meeting scheduled for July 30, the higher June inflation reading reinforces expectations that a July rate cut remains unlikely, but not completely off the table, according to Krimmel.
Federal Reserve Governor Christopher Waller has signaled openness to a July cut, but September remains a more plausible window for the first rate cut, despite President Trump’s constant demands for immediate rate lowering.
On the eve of the CPI release, Trump renewed his verbal attacks on Fed Chair Jerome Powell, arguing that he has been “terrible” and “doesn’t know what the hell he’s doing.”
The president argued that the economy was proving resilient despite Powell’s refusal to slash rates, but said it would be “nice” if the Fed cut rates “because people would be able to buy housing a lot easier.”
“Consumer Prices LOW,” Trump wrote on Truth Social on Tuesday morning. “Bring down the Fed Rate, NOW!!!”
Democrats, meanwhile, interpreted the latest CPI report as a validation of their warnings that Trump’s tariffs would add upward pressure on inflation.
“For those saying we have not seen the impact of Trump’s tariff wars, look at today’s data. Americans continue to struggle with the costs of groceries and rent—and now prices of food and appliances are rising, said Sen. Elizabeth Warren, a Democrat from Massachusetts. “Families were already getting crushed, and the president’s making it worse.”
Mortgage rates ticked up slightly last week after a slow but steady decline earlier this summer.
“As inflation edges up, rates are expected to remain elevated through the rest of the season, adding to affordability challenges for home shoppers,” says Krimmel.
According to Realtor.com’s June Housing Market Trends report, active listings topped one million for a second straight month, as more homes linger on the market. With high mortgage rates and weak homebuying sentiment, more buyers are staying on the sidelines.
For those who do venture into the market, conditions are more balanced than in recent years: price cuts are more common and buyers are regaining leverage.
“Still, unless inflation softens and long-run rates decline, housing activity is likely to stay subdued heading into late summer,” warns Krimmel.