Progress stalls as tariffs are starting to show
Peter Bernstein, Chief Economist pbernstein@rcfecon.com, 312-431-1540 x1515
Louise Collis, Senior Economist
July 16, 2025
The Current Situation
The CPI All Items rose 0.3% in June, raising the year-on-year inflation to 2.7%. Core CPI, which strips out the volatile food and energy categories, also increased in June: to 0.2% for the month and 2.9% for the year. The increase in both of these inflation measures moves us further from the Fed’s 2 percent goal and reduces the chances of any rate cuts in the coming months. The year-on-year Producer Price Index for June fell to 2.3%.
Tariffs showed up in increases in goods (commodity) prices which rose 0.3% in June, the same as the increase in service prices, a break from a longstanding history of goods prices acting as a source of lower inflation. Specifically, household furnishing prices rose 1.0% in June, appliances were up 1.9% and toys were up 1.8%. Still, the ongoing increase in service prices – which make up most of the CPI – is a key contributor to inflation. Services prices are up 3.8% compared to a year ago.
Looking ahead, it is likely that measures of the annual inflation rate will move higher again in July, perhaps returning to the 3% mark last seen in January. If progress stalls for too long at this level, expectations of higher inflation may become entrenched. If so, the Fed would have less flexibility to cut rates if the economy were to weaken.
RCF’s Inflation Scorecard
RCF’s Inflation Scorecard is based on analysis of 20 different price series comprising 98% of the total consumer price index. Each of these price series represents a portion of the CPI based on household spending patterns. For example, food purchased for at-home consumption is about 8% of the typical consumer’s budget; it has a weight of 8.04 out of a total index of 100.
Our scorecard presents two metrics to track month-to-month price increases. The first metric is the share of the index for which inflation in the most recent month is rising (greater than the prior month’s inflation) vs. the share of the index for which inflation is falling (lower than the prior month) or prices fell (deflation).
RCF Inflation Scorecard: June 2025
Our first metric shows that only 6% of the weighted CPI had falling inflation in June vs May, the worst reading in over a year. Another 8% of the weighted CPI saw prices decline in June (deflation). Added together, only 14% of the CPI had either lower inflation or lower prices during the month. In contrast, 37% of the CPI had rising inflation in June vs. May, with the rest of the CPI having the same level of inflation in June as in May.
Our second metric shows that 72% of the weighted CPI still has monthly inflation above 0.2%, a monthly figure that corresponds to the Fed’s annual target of 2% inflation. The above 0.2% share has remained elevated since briefly dipping below 50% last summer. The longer inflation stays above 2%, the more stubborn it becomes as expectations for higher prices and wages are built into future changes.
Analysis of Individual Components of the Consumer Price Index
Sources: Bureau of Labor Statistics and RCF Calculations 1. Inflation direction indicates whether monthly inflation in June was higher or lower than monthly inflation in May. Deflation means prices fell in June vs May.
Highlights:
- Food at home and food away from home prices rose 0.3% and 0.4% respectively and are up 2.4% and 3.8% from a year ago. Coffee is up 2.2% in June, a result of higher tariffs and lower than typical production.
- As noted earlier, tariffs are starting to show up in the prices of household furnishings (up 1% in June) and apparel prices which increased 0.4% in June after falling 0.4% in May.
- Offsetting the increase in prices due to tariffs has been the continuing lower inflation for rent of primary residence which increased just 0.2% in June, lower than the overall increase in prices. But increases over the last year mean that rent is up 3.8% for the year and owners’ equivalent rent is up 4.2%.
- Motor fuel prices are up 1% for the month, but down 8% from a year ago.
- Only three components showed price declines in June: used cars and trucks, down 0.7%, new vehicles, down 0.3%, and lodging away from home which is down 2.9% and is at its lowest level since September 2022.
- Average weekly earnings fell 0.1% in June as a 0.2% increase in average hourly earnings was more than offset by a 0.3% decline in hours worked. Growth in real earnings has been a consistent bright spot for the economy. June’s decline might just be a blip but the trends of slower growth in earnings and higher inflation do not bode well for household finances.
