June CPI: Warm but not hot start to summer

Summary

Consumer price inflation picked up in June, rising by 0.3% since May and 2.7% compared to one year ago. The faster price growth was largely anticipated by forecasters, as both the headline and core CPI increases were very close to our projections and the market consensus. Core goods prices rose 0.2% in the month, hinting at greater price pressures from the increase in tariffs on U.S. imports. Yet, core services inflation remained relatively tame, registering a 0.25% increase in June.

In the 12 months ending in June, core consumer prices have risen 2.9%. For the optimists, this represents a modest decline in core inflation from the 3.2% rate registered at the end of 2024. For the pessimists, the core inflation rate has been stuck around current levels since February and is still above the central bank's 2% inflation target. With the impact from tariffs still in the early innings, we expect the FOMC to maintain its wait-and-see approach to the fed funds rate at its upcoming meeting on July 29-30.

However, we still expect the FOMC to begin cutting rates at its September meeting. The gradual softening in the labor market that is ongoing suggests monetary policy is still restrictive, and if tariffs remain near current levels (admittedly a major "if" in today's policy environment), then we think the worst-case scenarios around the inflation outlook are increasingly unlikely.

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