June CPI: Tariff pressures reignite inflation concerns
Barbara Reinhard, CFA
CIO, Multi-Asset Strategies and Solutions
It appears that new tariffs are starting to affect consumer prices. In the June inflation report, headline CPI accelerated to 2.7% over the prior 12 months, up from 2.4% in May. Core CPI (which excludes food and energy) rose 2.9%, the fastest pace since February. On a monthly basis since May, the headline index increased 0.3% while core rose 0.2%.
Looking deeper, appliance prices surged 1.9%, household furnishings rose 1.0%, and apparel prices increased 0.4%. Prices for used cars and airfare declined, though the broader rise across goods and services suggests that tariff-related cost pressures are beginning to work their way through the economy.
With more tariffs potentially taking effect in August, many economists are raising concerns about the risk of rising prices combined with slowing growth. This complicates the Federal Reserve’s policy outlook: even as economic momentum slows, persistent inflation could delay or reduce the likelihood of interest rate cuts. Markets currently anticipate two rate cuts by year-end, though our teams generally see one cut as more likely.
How are we investing in this environment? We continue to favor high-quality companies with strong pricing power and operational flexibility. Given the relative strength and resilience of U.S. large caps, we maintain a preference for U.S. equities over international markets.
Maverick Lin contributed to this article.