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In recent months, critics of President Donald Trump’s tariff campaign have been hampering an unwelcome rise in inflation. That moment may have arrived.
Prices rose 2.7% over the 12 months from June to June, and the Labor Bureau announced on July 15th. This is a sign that Trump’s import tax could ultimately be rising consumer prices, as many predictors have predicted. Increases in housing, food and gasoline prices have driven the rise.
Economists are widely hoping that tariffs will rekindle inflation. Inflation has plagued American consumers during the pandemic era.
The annual inflation rate eased to its four-year low of 2.3% in April, rising to 2.4% in May.
According to forecasts from data research firms Factset and the Wall Street Journal, annual inflation was expected to increase to 2.6% or 2.7% in June, primarily due to increased tariffs.
Since taking office, Trump has enacted a surge in tariffs, but many have been suspended or postponed. Currently, most imports have a 10% tariff.
Already, prices for some categories of consumer goods that may be affected by tariffs have increased. Apparel prices rose 0.4% in June. Furniture prices rose 1%. Prices for video and audio products increased by 1.1%. Toy prices rose 1.8%.
Sooner or later, most economists expect import taxes to increase inflation as retailers pass costs to American consumers. The June inflation report may be an early indication of its effectiveness.
“This shows the first inflation report where tariffs are beginning to appear effectively in major categories, from appliances and furniture to apparel and food,” said Daniel Hornn, a senior MIT fellow and former deputy director of the National Economic Council, in writing. “But it’s unlikely that it will be the last. As tariffs work through inventory from prior tax imports, they could raise prices more dramatically in the coming months.”
The Federal Reserve aims for an annual inflation rate of 2%, which is low enough that consumers don’t actually notice. Central bankers don’t expect to achieve that goal anytime soon, and tariffs are the main reason.
“If it wasn’t for the tariff shock, US inflation is likely to have reached the Fed’s 2% target this year,” Sheemashah, chief global strategist at Principal Asset Management, said in a written comment.
Why aren’t customs duties making prices even higher?
Inflation rate in June exceeded 2%, but not particularly high.
So far, in 2025, Trump’s tariff campaigns have not been registered much in consumer pricing data. Voted by the Wall Street Journal, economists predict that annual inflation will rise to a modest 3% in December.
Why: Trump threatened large tariffs on most of his country’s major trading partners, but his administration prevented them from enacting them. Many of the most punitive tariffs are currently suspended.
That could change. On July 10, Trump announced plans to raise tariff rates on many Canadian imports from 25% to 35%, and to impose blanket tariffs of 15% to 20% in most other countries. Two days later, Trump announced a 30% tariff on all imports from Mexico and the European Union. The new taxes are expected to take effect on August 1st.
When will the Fed cut interest rates?
These rising tariffs and inflation could encourage the Federal Reserve.
The “core” inflation rate, excluding food and energy prices, was 2.9% for the 12 months from June to June. That index is closely monitored by economists, and the Fed is monitored as a less volatile measure of price rise.
The Fed has stable benchmark federal funding rates annually, ranging from 4.25% to 4.5%. The central bank is projecting two upcoming rate cuts later this year, adjusting to reduce borrowing costs and stimulate the economy.
Few predictors expect the Fed will cut fees at the end of July at its next meeting, according to FedWatch Tracker. Many people are hoping for a cut at their next meeting in September.
“The Fed will stabilize their decision at the end of this month,” Comerica Bank chief economist Bill Adams said in a comment. “We can cut prices later this year, but we don’t have a guarantee.”
President Trump has pressured Federal Reserve Chairman Jerome Powell to lower interest rates or resign. Politicians generally support lower interest rates to boost the economy.
However, lower interest rates can also seed inflation. Powell, who operates independently of the president, said he wants to measure how tariffs affect prices before the Fed cuts interest rates.
Contributor: Paul Davidson
(This story has been updated to add new information)
