Key Takeaways
- Inflation accelerated in June according to the PCE price index. Prices rose 2.6% over the year, higher than the 2.4% annual price increase in May.
- “Core” PCE prices rose 2.8%, the same as in May, above the Federal Reserve’s 2% annual goal.
- Tariffs are pushing up consumer prices for certain items, economists said.
Prices for goods rose more than forecasters expected in June as businesses passed the cost of tariffs on to customers, according to the Federal Reserves preferred measure of inflation.
Prices rose 2.6% in June compared to the year before, according to the Personal Consumption Expenditures price index. That was up from a 2.4% increase in May, and well above its recent low point in September, when annual inflation was 2.1%. Core prices, which exclude the volatile prices for food and energy, rose 2.8% over the year, the same as in May and tied for its highest since February. Forecasters had expected a 2.5% PCE inflation and 2.7% core inflation according to a survey of economists by Dow Jones Newswires and The Wall Street Journal.
Inflation measures are stubbornly above the Federal Reserves goal of a 2% annual rate. President Donald Trumps wide-ranging import taxes, which he began imposing in February, have pushed prices up, according to analysis by several economists. The report echoed a resurgence of inflation shown in the Consumer Price Index, a separate inflation measure released earlier in July.
Though less than various threats from the White House, this is a significant cost increase for importing U.S. firms, Elise Burton, an associate economist at Moodys Analytics, wrote in a commentary. Earlier this year, hoping that tariffs would be lowered considerably or go away altogether, many firms opted to eat the cost increase instead of hiking prices and risking market share. With that hope dashed, and pre-tariff inventory dwindling every day, consumer prices are set to rise in the coming months.
Consumer Spending is Slowing
People have been buying less of those pricier items: after adjusting for inflation, consumer spending increased 0.1% in June, erasing less than half of a 0.2% drop in May, suggesting household budgets are becoming increasingly frugal.
“Americans continued to spend in June, but moderating income growth and tariff pressures put a brake on any shopping sprees,” Oren Klachkin, financial markets economist at Nationwide, wrote in a commentary. “We expect the consumer will continue to look for discounts through the rest of the year.”
What Does the Data Mean For the Fed?
Stubborn inflation has also, indirectly, kept borrowing costs high on all kinds of loans.
The Federal Reserve has kept its benchmark interest rate flat this year at a higher-than-usual level in an effort to discourage borrowing and spending and stamp out high inflation. The Fed pays especially close attention to PCE inflation, using the core PCE price index as its benchmark for whether inflation is running at the central banks target of a 2% annual rate.
Update, July 31, 2025—This article has been updated after publication to include commentary from economists and information about consumer spending trends.
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