The tariff-driven inflation that economists feared begins to emerge

WASHINGTON (AP) — Inflation rose last month to its highest level since February as President Donald Trump’s sweeping tariffs push up the cost of a range of goods, including furniture, clothing, and large appliances.

Consumer prices rose 2.7% in June from a year earlier, the Labor Department said Tuesday, up from an annual increase of 2.4% in May. On a monthly basis, prices climbed 0.3% from May to June, after rising just 0.1% the previous month.

Worsening inflation poses a political challenge for Trump, who promised during last year’s presidential campaign to immediately lower costs only to engage in a whipsawed frenzy of tariffs that have left businesses and consumers worried. Trump has already declared that the U.S. effectively has no more inflation as he has attempted to pressure Federal Reserve Chair Jerome Powell into cutting short-term interest rates.

Yet the bump in inflation last month makes it more likely that the central bank will keep rates unchanged at the central bank’s next meeting in two weeks. Powell has said that he wants to see how the economy reacts to Trump’s duties before reducing borrowing costs.

Excluding the volatile food and energy categories, core inflation increased 2.9% in June from a year earlier, up from 2.8% in May. On a monthly basis, it picked up 0.2% from May to June. Economists closely watch core prices because they typically provide a better sense of where inflation is headed.

The uptick in inflation was driven by a range of higher prices. The cost of gasoline rose 1% just from May to June, while grocery prices increased 0.3%. Appliance prices jumped for the third straight month. Toys, clothes, audio equipment, shoes, and sporting goods all got more expensive, and are all heavily imported.

“You are starting to see scattered bits of the tariff inflation regime filter in,” said Eric Winograd, chief economist at asset management firm AllianceBernstein, who added that the cost of long-lasting goods rose last month, compared with a year ago, for the first time in about three years.

Winograd also noted that housing costs, one of the biggest drivers of inflation since the pandemic, has continued to cool, which is holding down broader inflation. The cost of rent rose 3.8% in June compared with a year ago, the smallest yearly increase since late 2021.

“Were it not for the tariff uncertainty, the Fed would already be cutting rates,” Winograd said. “The question is whether there is more to come, and the Fed clearly thinks there is,” along with most economists.

Some items got cheaper last month, including new and used cars, hotel rooms, and air fares. Travel prices have generally declined in recent months as fewer international tourists visit the U.S.

The report set up a broader political battle over Trump’s tariffs, a fight that will ultimately be determined by how the U.S. public feels about their cost of living and whether the president is making good on his 2024 promise that his agenda would help the middle class.