“LOWER THE RATE!”
Shouted a livid Donald Trump, somewhere.
Underlying price growth undershot expectations again in this week’s marquee US macro release, confounding economists who’ve spent months wrongly predicting a tariff-related upturn in US inflation aggregates.
Core CPI printed a 0.228% MoM gain for June, the BLS said Tuesday, meaningfully cooler than the 0.3% expectation and a fifth straight undershoot to consensus.
On a YoY basis, the core gauge ticked higher to 2.9%, as expected. Measured on a three-month annualized basis, core CPI’s running 2.4%, up from +1.7% on the same calculation as of May. The headline index rose 0.287% MoM and 2.7% YoY.
Not to put too fine a point on it, but this is the sort of thing that feeds into Trump’s narrative: Economists have forecasted core CPI above actual underlying inflation every, single month since his second term began. Whether that reflects anti-Trump bias or not, it certainly looks like it does, and that’s all that matters to Trump’s supporters who see a conspiracy around every corner.
With that out of the way, this particular release actually wasn’t totally benign. Food prices rose 0.3% for a second month, the energy gauge posted its largest MoM gain since January (the gas index rose for the first time in five months), apparel prices rose versus May (even as they fell YoY) and the medical services index notched its biggest monthly gain of 2025.
Both used and new vehicle prices fell again, though, as did airfares, and the 0.2% increase for the shelter gauge counted as relatively cool. Although there was some evidence of tariff pass-through (see the outsized MoM advance on the household furnishings line, for example), it’s far from obvious that the levies are being aggressively foisted upon consumers.
As discussed here on Monday, tariff pass-through so far is just ~40%, according to Goldman. That’s potentially bad for corporate profit margins, but it’s good for consumers and also for Trump, who’s determined he can wage a trade war without increasing the cost of living for Americans.
Economists were right back at it Tuesday, calling this the calm before the storm. Eventually, they said, tariffs will manifest in higher inflation prints. I don’t disagree, but in the meantime these undershoots look like evidence to support Trump’s assertion that the “establishment” is deliberately overstating the risks.
The CPI-derived “supercore” measure — i.e., core services price growth stripping out the rent and OER metrics — printed a 0.21% MoM advance. That was the highest in four months, but nevertheless counts as tame.
Bottom line: Fed hawks are running out of excuses. And Jerome Powell’s chairmanship may be running out of time.
How long were significant tariffs in effect as opposed to announced and postponed?
The average US tariff rate’s far higher now than it was in December. Look, the inescapable bottom line here is that so far, the tariffs simply haven’t resulted in the kind of inflation bump that economists expected. It is what it is.
As a friendly reminder to everyone: I’m not going to spend four years imparting an anti-Trump spin on every, single data point. God knows I don’t think he’s fit for office, but unless I have stone, cold proof that the data itself is being manipulated (and there’s no such proof yet), then the numbers just are what they are. When they suggest, as they do currently, that economists are wrong and Trump’s right, then that’s what they suggest. If it’s 24-hour anti-Trump coverage you want, there’s MSNBC for that.
Understood. But I was asking for some clarity. I’ve been confuzzled by just what tariffs are already in effect versus threatened.
Investors have come to expect instant gratification on everything (as I did years ago when I was dating.) JL carefully pointed out a week or so ago, any impacts are unlikely to manifest until the fall. That’s too long to wait I guess.
Things almost always take longer than you expect. By my personal definition, the inflationary spike was transitory, I guess I just have a longer timeline than others. Another example is a house I bought in 2003 as I was starting a new business where I was employed and I had a near zero net worth. The bank offered me a mortgage of 110% of the purchase price. I figured this couldn’t continue but it did for five more years. Unless there are some major changes, it will get here. I just don’t know when.
Definitely appreciate your second paragraph Mr H. We all have our political preferences. But continuous ideological diatribe and demonizing just gets boring. Your critical economic and capital markets analysis is always valued.
Overall CPI-U +0.3% MOM SA in June, after +0.1% in May, +0.2% in Apr.
Core CPI +0.2%, after +0.1%, +0.2%.
Seems the half-full/half-empty debate is “2.5% annualized” vs “but moved up”.
Is it worth noting the recent progression of MOM SA inflation, as a clue to future direction? For example, here are some heavily imported categories, they seem to have an accelerating trend.
– Fruit and veg (the part of Food at Home most likely imported) +0.9% in June after +0.3% May, -0.4% Apr.
– Household furnishings (also heavily imported) +1.0%, +0.3% May, +0.2% Apr.
– Apparel (ditto) +0.4%, -0.4%, -0.2%.
Cars are also heavily imported, but large-ticket and sensitive to demand/rates – they look different, slumping into deflation.
– New cars -0.4%, -0.5%, +0.1%
– Used cars -0.7%, -0.5%, -0.5%
In contrast, categories that are almost pure “services” are no-trend or cooling-trend.
– Rent of shelter +0.2%, +0.3%, +0.4%
– OER +0.3%, +0.3%, +0.4%
– other services similar choppy, no clear pattern. “Services less rent” +0.4%, +0.2%, +0.3%.
thanks for additional breakdown, John L.