Tariff-Driven Inflation Emerges

Inflation rose last month to its highest level since February as President Donald Trump's sweeping tariffs pushed up the cost of everything from groceries and clothes to furniture and appliances. Consumer prices rose 2.7% in June from a year earlier, the Labor Department said Tuesday, up from an annual increase of 2.4% in May.

Worsening inflation poses a political challenge for Trump, who as a candidate promised to immediately lower costs, but instead has engaged in a whipsawed frenzy of tariffs that have jolted businesses and consumers. "You are starting to see scattered bits of the tariff inflation regime filter in," said Eric Winograd, chief economist at asset management firm AllianceBernstein.

Winograd noted that housing costs, a big inflation driver since the pandemic, have continued to cool, actually holding down broader inflation. The cost of rent rose 3.8% in June compared with a year ago, the smallest yearly increase since late 2021. "Were it not for the tariff uncertainty, the Fed would already be cutting rates," Winograd said.

Some items got cheaper last month, including new and used cars, hotel rooms, and airfares. Travel prices have generally declined in recent months as fewer international tourists visit the U.S.

A broader political battle over Trump's tariffs is emerging, a fight that will ultimately be determined by how the U.S. public feels about their cost of living and whether the president is making good on his 2024 promise to help the middle class.

"Consumer Prices LOW," Trump posted on Truth Social. "Bring down the Fed Rate, NOW!!!"

For Democratic lawmakers, the inflation report confirmed their warnings over the past several months that Trump's tariffs could reignite inflation. They said Tuesday that it will only become more painful given the size of the tariff rates in the letters that Trump posted over the past week.

"For those saying we have not seen the impact of Trump's tariff wars, look at today's data. Americans continue to struggle with the costs of groceries and rent — and now prices of food and appliances are rising," said Sen. Elizabeth Warren, D-Mass.

Many businesses built up a stockpile of goods this spring and were able to delay price hikes, while others likely waited to see if the duties would become permanent. More businesses now appear to be throwing in the towel and passing on costs to consumers, including Walmart, the world's largest retailer, which has said it raised prices in June.

Powell said last month that companies up and down the supply chain would seek to avoid paying tariffs, but that ultimately some combination of businesses and consumers would bear the cost. "There's the manufacturer, the exporter, the importer, the retailer, and the consumer, and each one of those is going to be trying not to be the one to pay for the tariff," the Fed chair said.

Trump has imposed sweeping duties of 10% on all imports plus 30% on goods from China. Last week the president threatened to hit the European Union with a new 30% tariff starting Aug. 1. He has also threatened to slap 50% duties on Brazil, which would push up the cost of orange juice and coffee.

Overall, grocery prices rose 0.3% last month and are up 2.4% from a year earlier. While that is a much smaller increase than after the pandemic, when inflation surged, it is slightly bigger than the pre-pandemic pace. The Trump administration has also placed a 17% duty on Mexican tomatoes.

Families have cut spending on food as prices rise. "It feels like a miracle if I'm able to leave the grocery store without spending $100," said Cassidy Grom, 29, her husband, and his mother are eating out less and try to stretch grocery store rotisserie chickens as far as possible.

Accelerated inflation could provide a respite for Powell, who has come under withering fire from the White House over interest rates. The Fed chair has said that the duties could both push up prices and slow the economy, a tricky combination for the central bank since higher costs would typically lead the Fed to hike rates while a weaker economy often spurs it to reduce them.