How cool is inflation?

It’s all in the details. While the initial inflation figures last week looked supportive of cooling trends overall, the underlying data is perhaps starting to illustrate more pronounced tariff impacts. This was to be expected as Chair Powell has stressed before that the Fed is looking to learn more about tariff implications throughout the summer data. It’s likely still early in the timeline and the picture will hopefully become clearer as we progress towards the fall.

Core inflation increased 0.2% month-over-month in June, which was better than forecast, while the year-over-year rate came in at 2.9%, as expected. Lodging, airfare, and vehicle prices, both new and used, all fell. However, household furnishings, recreation commodities, apparel, and auto parts all increased meaningfully, which could be a sign of the tariff impacts beginning to show in the data.

Other data last week suggests the US consumer remains healthy and active. June retail sales increased 0.6% month-over-month, a significant reversal from the negative trends in May. A consumer willing to spend is an encouraging sign for businesses looking to pass on those tariff costs.