Tariffs and inflation are two economic subjects that have been the talk of the town this year. Economic observers combed through the most important inflation report – until the next one, that is – to determine whether President Donald Trump’s levies are finally traversing through the US marketplace. While the term “uncertainty” has been a common refrain among businesses, consumers, and policymakers, another word has become ubiquitous as of late: mixed.
Tariffs and Inflation in June
The Bureau of Labor Statistics released the Consumer Price Index (CPI) and the Producer Price Index (PPI) for June. The results? If you are on Team Tariffs, these were excellent readings, suggesting the White House’s trade pursuits were not triggering price pressures. If you were in the anti-tariff camp, these numbers were proof that tarifflation is forming.
First, the annual inflation rate ticked up to 2.7% from 2.4% and was in line with economists' expectations. It was the biggest surge in five months. The core CPI, which strips out volatile energy and food prices, also edged up to a lower-than-expected 2.9%.
Second, goose eggs were seen across the PPI report. From May to June, producer prices and the core PPI remained at 0%. In the 12 months ending in June, the PPI and core PPI eased to 2.3% and 2.6%, respectively. Additionally, the PPI excluding food, energy, and trade was also 0%. Economists are placing more weight on the PPI over the CPI lately because the former can serve as an indicator for future consumer inflation, as it occurs early in the supply chain.
Let’s do a deeper dive into the two June reports and determine if tariffs and inflation go together like a horse and carriage.
Underneath the CPI Hood
The primary drivers of the rise in consumer prices were shelter and energy. The former rose 0.2% and the latter climbed 0.9%. The spike in the energy index was unsurprising since crude oil prices responded to the escalation in Middle East tensions involving Israel, Iran, and the United States. They have since returned to pre-conflict levels and will likely decline in the July reading.
Of course, these have little to do with higher import duties, for now, and the data readers are assessing tariff-sensitive sectors.
The indexes for new vehicles and used cars and trucks tumbled 0.3% and 0.7%. In recent weeks, automobile figures have been riveting for several reasons. The first is that consumer demand has waned, with new vehicle sales sliding as the public adopts a wait-and-see approach to major purchases. The second is that foreign carmakers, primarily from Japan, are eating the tariffs.
Apparel, however, registered a 0.4% increase. Other tariff-sensitive items were mixed: Smartphones remained unchanged, appliances increased by 1.9%, and televisions dipped by 0.1%.
Ultimately, the June CPI report did not offer much clarity as to whether tariffs are rekindling the inflation flame. According to Federal Reserve Chair Jerome Powell, the June numbers were intended to be the first indication of whether Trump’s levies were contributing to higher inflation.
Verdict: Perhaps the answer lies in the producer price index, a gauge of what businesses pay for goods and services, which is eventually passed on to consumers in the form of higher prices.
Digging Into the PPI
Is pipeline inflation heating up? It depends on where you look. According to the Bureau of Labor Statistics, prices for final demand goods advanced 0.3%, fueled by a 0.8% spike in communications and related equipment. Prices for final demand services, meanwhile, slipped 0.1%, primarily due to a 4.1% decline in prices for traveler accommodation services.
One concerning development in the June PPI data was the 1.9% increase in intermediate demand goods. These are products used as inputs in the production of goods and services. Some examples would be electronic components, packaging materials, steel, and glass.
At the same time, it is worth noting that there has been virtually no wholesale inflation since the beginning of the year. Cumulative inflation for the first half of 2025 was 0.5%, indicating that foreign producers have yet to pass on higher tariff-related costs to importers.
Verdict: still no clear answers from the PPI.
Reading a Beige Book
The Beige Book, a periodic report published by the Federal Reserve summarizing economic conditions across the central bank’s 12 districts, did not provide much clarity for the future path of consumer inflation. While the Beige Book noted that prices rose across all districts, the report noted they were either "moderate" or "modest," comparable to the previous edition. But here is the heart of the monthly Fed document:
"Many firms passed on at least a portion of cost increases to consumers through price hikes or surcharges, although some held off raising prices because of customers' growing price sensitivity, resulting in compressed profit margins. Contacts in a wide range of industries expected cost pressures to remain elevated in the coming months, increasing the likelihood that consumer prices will start to rise more rapidly by late summer."
Verdict: Just wait and see.
The Department of Lagging
Later this month, the Fed’s preferred personal consumption expenditures (PCE) price index will be released. Early estimates suggest an uptick in both the annual and monthly numbers. However, based on the movement of the PPI, it is unlikely to spotlight a tariff-driven acceleration.
So, if the July statistics do not confirm that Trump’s tariffs are leading to price inflation, does this mean the worst is over? Not exactly. Tariffs have a lag effect, meaning they may not be reflected in the hard economic data until later in the year or in 2026. The outcomes of tariffs and inflation depend on several factors: how much importers stocked up ahead of the Liberation Day launch, whether businesses are willing to absorb the tariffs to avoid irking price-sensitive customers, the terms of any trade agreements made, and how much energy prices will decline. Reading economic data has never been so much fun!
