MW Tariffs have played a small role so far in rising inflation: 4 things we learned from the CPI report

By Jeffry Bartash

The price of goods is climbing, but the increase in the cost of services is slowing

Inflation in June showed scattered signs of rising costs tied to the Trump tariffs, but Americans simply aren't paying sharply higher prices because of U.S. trade wars - at least not yet.

Here are four things we learned from the latest consumer-price index report.

Inflation is trending higher

The yearly rate of inflation has crept up to 2.7% from a four-year low of 2.4% in April. Tariffs are to blame, right?

Read: Inflation shows biggest rise in five months, with only scattered signs of tariff effects

Not really. The biggest reason for the increase is what economists call "base effects." Put simply, some very low inflation readings from last year have dropped out of the 12-month inflation average.

Tariffs could add more noticeably to the rise in inflation in July and August, however. The June CPI, in fact, contained the seeds of future price increases.

Prices of goods the U.S. largely imports from China, for instance, showed big increases last month. They included clothes, sneakers, furniture, appliances and toys.

Some economists insist more tariff-related inflation is on the way.

"I continue to anticipate that a tariff-related acceleration in inflation is coming this summer, likely beginning in July," said chief economist Stephen Stanley of Santander Capital Markets, one of Wall Street's DJIA SPX most accurate inflation forecasters.

Housing is a coolant

A chief reason inflation is still tame despite the trade wars is a slowdown in rents and home prices, the single biggest expense for most people.

The increase in the cost of shelter over the past year slowed a tick to 3.8% in June, down from 5.2% one year ago and a 40-year peak of 8.2% three years ago.

Residential shelter is the single biggest component of the CPI, accounting for 34% of the entire index. When shelter prices slow, inflation doesn't look so bad.

"If house prices and rents continue to run cool, they will further slow core inflation," said Bill Adams, chief economist of Comerica.

Cost of services decelerates

Tariffs mainly affect the cost of goods, but Americans spend far more on services each year. And not only has the cost of housing slowed, but that's true of services more broadly.

The cost of services has decelerated to a yearly pace of 3.6% from twice that rate in 2023. Services make up about 61% of the CPI.

The downward trend in service prices has offset an increase in goods prices that is likely a result of the tariffs.

Goods prices, with food and energy stripped out, showed a 0.7% increase in the 12 months that ended in June. It doesn't sound like much, but goods prices actually declined in 2024.

The recent increase only began with the Trump tariffs.

These goods prices only make up 19% of the CPI, however. It would require very large increases to sway the U.S. inflation rate.

Businesses may face off with consumers

U.S. companies stocked up on imported goods and supplies before tariffs were put in place, allowing them keep prices on the low side until their inventories run out.

Some analysts argue the inflation-suppressing effect of tariff front-running will soon run its course.

"Tariffs will likely increase prices more dramatically in the months ahead, as businesses work through their inventories from pretariff imports," said Daniel Hornung, a senior fellow at MIT and former deputy director of the National Economic Council.

Yet other economists question whether consumers will pony up. They have become more resistant to price increases after experiencing the worst inflation since the 1980s.

"Skittish consumer demand may be limiting businesses' pricing power and forcing them to absorb 'tarifflation' for the time being," Adams of Comerica said.

-Jeffry Bartash

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July 15, 2025 12:41 ET (16:41 GMT)

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