Kiplinger Economic Outlooks are written by the staff of our weekly Kiplinger Letter and are unavailable elsewhere. Click here for a free issue of The Kiplinger Letter or to subscribe for the latest trends and forecasts from our highly experienced Kiplinger Letter team.
Tariffs pushed up prices of some goods in June’s inflation report, but so far have had only a modest effect on overall inflation. In June, prices of some consumer goods that are typically imported jumped. These included appliances, up 1.9%; cookware/tableware, 3.7%; linens, 5.5%; sports equipment, 1.8%; toys, 1.8%; audio/video equipment, 3.4%; men’s shirts, 4.3%; and women’s dresses, 3.9%.
However, other categories have not shown a price bump yet, including other apparel, motor vehicles and televisions. It seems likely that tariff costs will become more noticeable in prices as pre-tariff inventories of imported goods are drawn down throughout the summer. However, it is possible that some businesses may opt to cut their profit margins rather than lose market share.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The price increases from tariffs have not been enough, yet, to push the yearly inflation rate upward very much. Overall yearly inflation picked up to 2.7%, from 2.4% in May, but the core inflation rate (excluding food and energy) edged up only slightly, to 2.9% from 2.8%. Food and energy costs rose moderately, but this was nothing out of the ordinary. One piece of good news for consumers is that egg prices dropped 7.4% in June, their third consecutive decline, and are 21% lower than their February peak.
The uncertainty about the size of tariff effects on prices will likely keep the Federal Reserve on hold at its next policy meeting on July 30. The Fed will want to see the effects of tariffs on inflation over the next several months before acting. Since tariff effects on consumer prices will happen only gradually, the Fed is likely to wait a number of months in order to assess the longer-term impact.
While the headlines focus on the Consumer Price Index, note that the Fed’s goal of 2% inflation is based on a measure called the personal consumption expenditures deflator, not the CPI. The PCE deflator excluding food and energy rose at a 2.7% rate for the 12 months ending in May, compared with the core CPI’s 2.8% May number. Still, that’s well above the Fed’s target for 2% inflation over the long term.
Related content
-
The Retirement Bucket Rule: Your Guide to Fear-Free SpendingForget market declines or rising inflation. With this strategy, you won’t have to worry about any of that during retirement.
-
How Big Will the Fed Rate Cut Be This Fall?A dismal July jobs report has lifted expectations for fall rate cuts. But just how low could the fed funds rate be by year's end?
-
How Big Will the Fed Rate Cut Be This Fall?
A dismal July jobs report has lifted expectations for fall rate cuts. But just how low could the fed funds rate be by year's end?
-
July Jobs Report Renews Rate-Cut Hopes: What the Experts Are SayingThe July jobs report shows weakening in the labor market and lifts expectations for a September rate cut.
-
The Rise of AI: A Kiplinger Special ReportThe Kiplinger Letter Our special report looks at the opportunities and challenges of generative AI and how its rapid move into the mainstream is impacting every aspect of our lives.
-
Should You Buy These ETFs Before the Fed Cuts Rates?The Fed is likely to lower interest rates this fall, and tactical investors may want to look closer at these ETFs before rate cuts resume.
-
Big Changes Are Ahead for Higher EdThe Kiplinger Letter A major reform of higher ed is underway. Colleges are bracing for abrupt change, financial headwinds and uncertainty.
-
July Fed Meeting: Updates and CommentaryThe July Fed meeting came and went, with Fed Chair Powell saying little about a September rate cut and President Trump.
-
What Will the Fed Do at Its Next Meeting?Rate cuts remain on hold this summer, experts say.
-
AI-Powered Smart Glasses Set to Make a Bigger SplashThe Kiplinger Letter Meta leads the way with its sleek, fashionable smart glasses, but Apple reportedly plans to join the fray by late 2026. Improved AI will lure more customers.
