US Inflation Hits 2.7% Annual Rise Driven by Trump Tariffs

Inflation in the United States surged to its highest level since February, driven by the increasing costs of various goods due to President Donald Trump’s extensive tariff policies. The Labor Department reported that consumer prices rose by 2.7% in June compared to the same period last year, marking an increase from the 2.4% annual rise observed in May. On a monthly basis, prices climbed by 0.3% from May to June, following a 0.1% increase the previous month.

This inflationary trend poses significant political challenges for President Trump, who had promised to lower costs during his presidential campaign. The sharp inflation spike following the pandemic was the worst in four decades and had a negative impact on public sentiment towards Joe Biden’s economic management. Higher inflation is also likely to influence the Federal Reserve’s decision-making process, making it less inclined to reduce its short-term interest rate, despite Trump’s vocal demands for such a move.

Trump has repeatedly asserted that there is “no inflation,” arguing that the central bank should swiftly reduce its key interest rate from the current level of 4.3% to around 3%. However, Fed Chair Jerome Powell has expressed caution, stating that he wants to observe how the economy responds to Trump’s tariffs before adjusting borrowing costs.

Excluding the volatile food and energy categories, core inflation increased by 2.9% in June from a year earlier, up from 2.8% in May. On a monthly basis, it rose by 0.2% from May to June. Economists closely monitor core prices as they provide a better indication of future inflation trends.

The rise in inflation was attributed to a variety of factors, including a 1% increase in gasoline prices from May to June and a 0.3% rise in grocery prices. Appliance prices jumped for the third consecutive month, while the costs of toys, clothes, audio equipment, shoes, and sporting goods also increased. These items are heavily imported, and their price hikes are likely a result of the tariffs.

Eric Winograd, chief economist at an asset management firm, noted that the cost of long-lasting goods rose last month compared to a year ago for the first time in about three years. He also observed that housing costs, a significant driver of inflation since the pandemic, have continued to cool, which is helping to mitigate broader inflation. The cost of rent rose by 3.8% in June compared with a year ago, the smallest yearly increase since late 2021.

Winograd suggested that without the uncertainty surrounding tariffs, the Fed would already be cutting rates. He also noted that the question remains whether there will be further inflationary pressures, and both the Fed and most economists seem to anticipate more to come.

Trump has implemented sweeping duties, including a 10% tariff on all imports, 50% levies on steel and aluminum, 30% on goods from China, and 25% on imported cars. Last week, the president threatened to impose a new 30% tariff on the European Union starting in August. He has also threatened to slap 50% duties on Brazil, which would increase the cost of orange juice and coffee. Orange prices leaped by 3.5% just from May to June and are 3.4% higher than a year ago.

Overall, grocery prices rose by 0.3% last month and are up 2.4% from a year earlier. While this annual increase is smaller than before the pandemic, it is slightly higher than the pre-pandemic pace of food price increases. The Trump administration has also placed a 17% duty on Mexican tomatoes.

The acceleration in inflation could provide some relief for Fed Chair Powell, who has faced increasing criticism from the White House for not cutting the benchmark interest rate. Powell has stated that the duties could both push up prices and slow the economy, presenting a complex scenario for the central bank. Higher costs typically lead the Fed to raise rates, while a weaker economy often prompts rate cuts.

Trump has criticized Powell, describing him as “terrible” and claiming that he “doesn’t know what the hell he’s doing.” The president acknowledged that the economy is doing well despite Powell’s refusal to reduce rates but suggested that rate cuts would make it easier for people to buy housing.

Last week, White House officials also attacked Powell for cost overruns on the renovation of two Fed buildings, which are now estimated to cost $2.5 billion, roughly one-third more than originally budgeted. While Trump legally cannot fire Powell solely for disagreeing with his interest rate decisions, the Supreme Court has indicated that he may be able to do so “for cause,” such as misconduct or mismanagement.

Some companies have announced price increases due to the tariffs, including the world’s largest retailer, which said it would lift prices by an average of 2.1% in response to the duties. An automaker has also stated that it would implement “surgical” price hikes to offset tariff costs. However, many companies have been able to postpone or avoid price increases by building up their stockpiles of goods this spring to get ahead of the duties. Others may be waiting to see whether the U.S. can reach trade deals with other countries that lower the duties.