June's U.S. inflation maintained relative stability, with core CPI rising 0.3% month-on-month for the fifth consecutive month below expectations, primarily driven by cooling rent inflation and declining used car prices. However, this apparent softness fails to validate assumptions about minimal tariff impacts. Tracking indicators developed by CITIC Securities, including "import-intensive CPI," reveal tariffs are already influencing prices of import-sensitive consumer goods.

The dollar index briefly dipped post-data release, reflecting market satisfaction with core CPI's fifth straight undershoot. Yet June's moderation stemmed mainly from shelter costs (slowing to 0.2% MoM from 0.3%) and used vehicles (-0.7% from -0.5%)—neither directly import-linked nor indicative of tariff effects. Excluding these volatile components, other categories contributed 0.17 percentage points to core CPI growth, a significant jump from 0.03 points previously recorded.

CITIC's proprietary gauges tell a different story: The three-month moving average for import-intensive CPI accelerated to 0.11% in June from 0.03%, while China-intensive CPI surged to 0.29% from 0.10%. This signals initial pass-through of tariff costs to consumers—a process expected to continue for approximately six months despite the current calm.

While Trump's threatened "letter tariffs" appear more likely as negotiation leverage than implemented policy (potentially raising effective rates from 13.3% to 16.9% if fully enacted), existing tariffs already exceed 10%. Such pressures could soon disrupt the current inflation tranquility.

Persistent rebound risks loom for H2 2025, including potential sustained CPI readings above 3% year-on-year. Consequently, CITIC sees minimal likelihood of Federal Reserve rate cuts in July. Market expectations for two 2025 reductions remain reasonable but face downward revision risks. The U.S. dollar's depreciation potential appears constrained, while Treasury bonds currently offer limited appeal.

Risk factors include unexpected shifts in U.S. growth momentum, muted tariff impacts on inflation, weaker labor demand, unforeseen global policy changes, and abrupt market liquidity or sentiment fluctuations.