"US Consumer Prices Start to Reflect Tariff Effects, Full Impact Expected from August"

Tariff Impact by Sector and Effects on Chinese Consumer Goods

Core CPI Remains More Stable Than Expected, Positive Signal for September Rate Cut

The impact of tariffs, which US economists have consistently warned about, has begun to be reflected in US consumer prices. Although the Trump administration had deferred mutual tariffs and the like, it has already imposed sector-specific tariffs on steel, aluminum, automobiles, and Chinese consumer goods starting in April and May.

On the 15th (local time), the US Department of Labor announced the June Consumer Price Index (CPI), with the headline CPI rising by 0.3%p from the previous month, as economists had expected. On an annualized basis, it rose 2.7%. This is the biggest increase since January, when Trump took office.

On the other hand, the core consumer price index, excluding food and energy, rose by only 0.2%p, less than the 0.3%p economists expected. Although the rise was smaller than expected, the annual rate reached 2.9% and, for the first time in five months, approached 3%.

The lower-than-expected increase in the core consumer price index was mainly due to housing costs, which rose just 0.2%. Housing, which has the largest weighting in the price index, has mostly shown monthly increases of 0.3% or more this year, except for March. In addition, prices for used cars and trucks fell by the largest margin this year, down 0.7%. Due to weak demand, the increase in service-related prices such as airline tickets and hotels was also limited.

Over the past four months, the US CPI has not risen significantly despite tariff pressures.

This is largely because companies stocked up by advancing imports before tariffs took effect, keeping prices steady until inventories ran out. The 14% drop in oil prices since January has also helped lower energy costs for companies and households alike.

The recent stabilization in rent and housing prices, which account for the largest part of inflation, after a sharp surge post-pandemic, also had a significant impact. Housing costs are the biggest burden for most Americans.

Although the core CPI only rose by 0.2%, it is becoming clear that tariffs are starting to affect consumer prices.

Federal Reserve Board Chair Jerome Powell stated to Congress last month, "Tariff effects will start to appear in the inflation data for June and July."

Tariff-driven uncertainty in inflation will likely increase the burden for the Federal Reserve Board and Chair Jerome Powell, who has kept rates unchanged for that reason.

Trump's ongoing outrage toward Powell—he has strongly criticized the Fed chair and pushed for rate cuts—shows no sign of abating. President Trump believes a rate cut is urgent to lower the government’s rising borrowing costs due to his tax cut plan, regardless of inflation or economic logic.

Economists predict that as mutual tariffs take effect from August after having been in place for a while, upward pressure on inflation will intensify.

Gregory Daco, chief economist at EY-Parthenon, interviewed by Bloomberg, said, "Businesses are employing various strategies to mitigate the impact of tariffs." He added, "A greater blow will come in late summer, and the effects will grow over time."

Kay Haigh of Goldman Sachs Asset Management pointed out, "The June CPI showed early signs of tariff effects, but price pressures are expected to intensify during the summer." However, he indicated, "If core inflation remains solid in July and August, the Fed may open the door to rate cuts in the fall."

Brett Kenwell of eToro Securities noted, "The CPI released today largely met expectations and may help avoid a selloff in stocks, but the possibility of a July rate cut has basically disappeared."

Last week, President Trump reinforced his tariff threats by announcing tariff hikes on products from several countries including South Korea, Japan, Canada, Brazil, and the EU. The tariffs, which had been postponed from July, are expected to take effect in August, and President Trump declared that the deadline would not be extended.

Jung-A Kim, Contributing Reporter kja@hankyung.com