U.S. Consumer Price Index (June 2025)

Inflation heats up in June, as tariff impacts start to surface  

• The Consumer Price Index (CPI) rose 0.3% in June, in line with the consensus forecast in Bloomberg and an acceleration from May's gain of 0.1% m/m. On a twelve-month basis, CPI was up 2.7% (from 2.4% in May). 
  
  • Energy costs (0.9% m/m) turned higher last month – following a decline in May – while food prices (0.3% m/m) also came in on the hotter side and are now up 3.0% year-on-year (yr/yr). 
• Excluding food and energy, core inflation rose 0.2% m/m (0.23% m/m unrounded) – just shy of the consensus forecast calling for a gain of 0.3% m/m – but an uptick from May's 0.1% m/m. The twelve-month change edged higher to 2.9% (from 2.8% in May), while the three-month annualized ticked up to 2.4%.
• Services prices rose a 'soft' 0.3% m/m (0.25% m/m unrounded), up from May's gain of 0.17% m/m. Primary shelter costs rose 0.3% m/m, while price growth for non-housing services were up just 0.1% m/m – matching April and May's gain.
  • Travel costs (-1.5% m/m) remained a drag on non-housing services – having now recorded declines for five consecutive months. Lower hotel fares (-2.9% m/m) were the culprit last month, while airfares (-0.1% m/m) were largely flat, but have fallen a cumulative 14% since January. Meanwhile, price growth for medical (0.6% m/m), recreational (0.2% m/m) and other personal services (0.4% m/m) all edged higher in June.
• Core goods prices rose 0.2% m/m, with notable tariff impacts on select categories including home furnishing (+1.0% m/m), recreational goods (+0.8% m/m) and apparel (+0.4% m/m). New (-0.3% m/m) and used (-0.7% m/m) vehicle prices were both lower on the month. Excluding vehicles, core goods rose 0.5% m/m, or the strongest monthly gain since August 2022.

Key Implications

• Inflationary pressures heated up in June, as tariff impacts helped to push goods prices higher – even after accounting for the pullback in vehicle prices – while services inflation also gained some momentum following softer readings in two of the prior three months. Looking ahead, we expect tariff passthrough to intensify through the summer, as pre-tariff inventory stockpiles are drawn down, and businesses are forced to restock under significantly higher import duties.   
• But the degree of tariff passthrough remains uncertain. Today's profit margins for trade exposed sectors remains elevated, so there is room for goods sellers to absorb some of the price impact, particularly if consumer demand were to remain healthy. Moreover, should services inflation continue to cool on trend as it has through most of this year, it would provide some offset to higher goods prices – limiting the overall hit to inflation. It is this uncertainty that is keeping policymakers on the sidelines and will continue to do so for at least another few months. Fed futures are pricing in just a 60% probability of quarter-point rate cut by September, and we would say that's a fair assessment given the current inflation risks amid a still resilient economy.

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