Trump's trade war begins to show up in inflation data
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What lower housing inflation giveth in terms of diminished price pressures, higher tariffs taketh away. That's the takeaway from the June Consumer Price Index report, out Tuesday.
The big picture: Overall inflation looked well-contained in June — but the details inside the new CPI data show a 180-degree reversal from recent years in where inflation is coming from.
- Housing costs now look well-behaved, while imported goods are becoming more expensive, due in part to the trade war.
- The new data offers the surest sign yet that tariff costs are being passed on to consumers in specific categories of goods, particularly furniture and apparel, even as overall inflation is moderate.
By the numbers: CPI rose 0.3% in June, while the core measure excluding energy and food prices was up 0.2% — increases that are in line with Wall Street expectations. Both gauges rose by 0.1% in May.
- In the year ending in June, CPI increased 2.7%, compared to the 2.4% rise in May. Core CPI was up 2.9% — rising a tick from the prior month.
- The increase is more dramatic by another measure: Core CPI is up an annualized 2.4% over the past three months, versus 1.7% in the March through May window.
Zoom in: Those headline figures mask underlying evidence of trade war effects hitting consumer prices, with increases in categories for items likely to be facing tariffs.
- Goods prices — a category including everything from apparel and footwear, to household furniture and cars — contributed the most to core inflation since 2022, the height of the inflation shock, according to calculations by Tani Fukui, an economist at MetLife Investment Management.
- Apparel prices rose by 0.4% last month, the first increase in the index since March. Window and floor coverings rose by 4.2% month over month, the largest increase on record.
- "I would see this as good evidence that tariffs are coming through with increases in prices on items that you would expect," Fukui says.
Yes, but: Shelter costs rose just 0.2% in June, extending a monthslong streak of benign increases. The outsize surges in rents of the not-too-distant past are no more.
- At the recent peak, the 12 months ended March 2023, shelter prices were up 8.2%. That has been receding gradually and reached 3.8% in June, the lowest since 2021.
What they're saying: Tariff effects on inflation "are like the broken bone," Fukui says. Meanwhile, "the Fed has been worried about shelter, which is sort of the arthritis or the chronic condition."
- "We simply need shelter to moderate more in the coming months, otherwise the math suggests it's going to be very difficult for CPI to not drift up into the 3% range," Bancreek Capital Advisors' Eric Pachman wrote in a note.
