PCE report shows U.S. inflation rose last month as Trump’s tariffs boosted some prices

The recent data released by the Commerce Department regarding the Personal Consumption Expenditures (PCE) index shows a slight uptick in inflation rates, indicating that President Trump’s tariffs are starting to have an impact on prices. Prices rose by 2.6% in June compared to the previous year, up from 2.4% in May. When excluding the volatile food and energy categories, prices increased by 2.8% over the past year, consistent with the previous month’s figures which were revised upwards.

This increase in inflation aligns with the Federal Reserve’s decision to maintain its key interest rate, as highlighted by Federal Reserve Chairman Jerome Powell. Powell emphasized that inflation is still above the Fed’s target of 2% and suggested that it may take some time to assess the full impact of the tariffs on prices. Scott Helfstein, head of investment strategy at Global X, noted that while there is evidence of tariff impact in the inflation data, it remains relatively modest, with sectors like healthcare, housing, and utilities playing a significant role in driving inflation.

On a monthly basis, prices saw a 0.3% increase from May to June, with core prices also rising by 0.3%. Both figures surpass the 2% target set by the Fed. The decision to keep the benchmark interest rate unchanged was influenced by the uncertainty surrounding the economic outlook and the persistent inflation rates above the 2% goal. President Trump’s calls for rate cuts due to subdued inflation were met with resistance from the majority of the Federal Open Market Committee, with only two dissenting votes in favor of a cut.

The recent surge in core prices may dampen the possibility of a rate cut at the Fed’s upcoming September meeting, according to Harry Chambers, an assistant economist at Capital Economics. The report also highlighted increases in gas and grocery prices, as well as price hikes in imported goods like furniture, appliances, and computers. However, some relief was seen in the service sector, with reductions in airfares and hotel room costs.

Consumer spending saw a modest increase of 0.3% in June, indicating cautious spending behavior among Americans. Incomes also saw a slight uptick after a decline in May, but when adjusted for inflation and taxes, incomes remained flat. Despite the solid 3% annual growth rate in the second quarter, concerns were raised about lackluster consumer spending and the reliance on a sharp drop in imports to boost GDP calculations.

Earlier reports on the Consumer Price Index also showed a rise in inflation rates, particularly in imported items such as appliances, furniture, and toys. These trends underscore the impact of tariffs on prices and the challenges faced by consumers in navigating a changing economic landscape.