US inflation numbers come in at 2.7%, higher than expectations

The US consumer price index rose 2.7% in June compared to a year earlier, more than economists’ forecasts. The increase upped May’s 2.4% annual rate, buoyed by shelter, food, energy, and household goods gains.

According to data released by the US Bureau of Labour Statistics (BLS), on a monthly basis, the CPI rose 0.3%, the biggest percentage uptick since January. Core inflation, which strips out food and energy costs, increased by 2.9% over the past 12 months. 

The figure came in slightly below the 3% predicted by analysts but is well above the Federal Reserve’s long-term target of 2%.

Shelter and core goods trending upwards

The BLS reported that shelter is the single largest contributor to overall inflation, despite slowing down to a 0.2% rise for the month. The category was up 3.8% year-over-year, with rent-equivalent measurements for owner-occupied housing up 0.3%. Lodging away from home, however, dropped by 2.9%.

In other categories, food prices rose 0.3% in June and were up 3% over the past 12 months. Energy prices, which declined in May, rebounded with a 0.9% monthly increase, although they are slightly lower compared to June 2024.

Transportation services ticked higher by 0.2%, while medical care services posted a 0.6% increase. Vehicle prices moved in the opposite direction, as prices for new cars declined 0.3%, and used car and truck prices fell by 0.7%.

Trade-sensitive categories like apparel prices, affected by tariffs, rose 0.4%, while household furnishings increased 1%, one of the largest jumps among core goods.

Trump administration is confident of the US economic situation

Speaking at the White House on Monday, ahead of the CPI release, President Donald Trump said that inflation was no longer a concern. “The economy is roaring, business confidence is soaring, incomes are up, prices are down, and inflation is dead,” he told reporters at the press briefing.

Yet, economists believe that even though inflation is objectively “steady,” the tariff situation around America and its trading partners will shoot up rates. According to the Yale Budget Lab, the US currently imposes an average tariff rate of 18.7%, the highest since 1933.

The levies include 30% tariffs on Chinese imports, 50% on steel and aluminum, and 25% on auto parts. A flat 10% tariff also applies to all other imports. These do not yet include recently announced threats by Trump, who over the weekend threatened to slap nations with new tariff rates.

Under the new threats, the European Union and Mexico would face 30% tariffs, Canada would be hit with a 35% levy, and Brazil could see tariffs as high as 50%. The move against Brazil is reportedly a response to the ongoing trial of former President Jair Bolsonaro, a close Trump ally, who is facing charges linked to an attempted coup.

George Goncalves, head of US macro strategy at MUFG, told Bloomberg that while CPI readings were firmer, they were unlikely to surprise markets given the anticipated 0.3% increase. 

“The worst-case scenario is that CPI categories potentially impacted by tariffs finally see a notable push up,” Goncalves remarked.

Despite the stronger CPI report, financial markets continued to bet that the Federal Reserve may begin cutting short-term interest rates by September. 

Traders currently see a 5% probability of a rate cut in July, but are more confident in their expectations for a policy change later in the year.

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