By Christopher Lugerber, Economics writer for the Associated Press
WASHINGTON (AP) — The Federal Reserve’s priority inflation gauge checked high last month with signs that President Donald Trump’s widespread tariffs are beginning to raise prices on many products.
Prices rose 2.6% in June compared to a year ago, the Commerce Department said Thursday that it had risen from its annual 2.4% pace in May. Excluding the volatile food and energy categories, prices have risen 2.8% over the past year, the same as the previous month, which has been revised higher. The figures exceed the Fed’s 2% target.
The price increase will help explain the central bank’s unwillingness to cut key interest rates this week despite repeated demands from Trump. On Wednesday, the Fed had not changed its key rate at 4.3%. Chairman FED Powell suggested it would take months for the central bank to determine whether it would cause a one-off rise in prices or a more sustained increase in inflation.
Trump attacked Powell personally and repeatedly, and again on Thursday.
Monthly prices rose 0.3% between May and June, while core prices also rose 0.3%. Both numbers are higher than matched with the 2% target.
“The above rise in core prices in June, revisions to the previous month’s data, and sharp rise in inflation in core products will rarely alleviate the Fed’s concerns about tariff-driven inflation.” “As expected, if these pressures continue, a September cut appears unlikely.”
The government’s gas price measure rose 0.9% between May and June, while grocery costs rose 0.3%. Many long-term goods that have been imported significantly showed clear price increases, with furniture prices increasing by 1.3% last month, appliances increasing by 1.9% and computers increasing by 1.4%.
Costs for some services fell dramatically last month, offsetting some of the price pressure from the products. Airfares fell 0.7% between May and June, but hotel room costs plummeted 3.6% in a month.
A report on Thursday showed that consumer spending rose 0.3% between May and June, a modest rise that suggests Americans are still spending cautiously. Adjusting for inflation, the increase was just 0.1%, the government said.
Americans’ income also picked up modestly, rising 0.3% last month and rebounded after a 0.4% drop in May. However, income adjusted for inflation and taxes was flat in June.
Consumers were cautious all year round. On Wednesday, the government said the economy had expanded at a 3% annual rate in the second quarter. For example, consumer spending rose at a 1.4% unshiny 1.4% pace, after an even lower profit of 0.5% in the first three months of the year. A sharp decline in imports in the April-June quarter following a surge in the first quarter has resulted in a major lift in government calculations of US gross domestic product.
Earlier this month, the government reported that key inflation measures, a more closely viewed consumer price index, would also be higher in June as costs for items such as appliances, furniture and toys increased.
Original issue: July 31, 2025 9:18am EDT
