US inflation surged to a four-month high of 2.7% on an annual basis in June. This is a pretty big jump from the inflation levels that have been quite low the last few months. On Tuesday, the Bureau of Labor Statistics released new Consumer Price Index (CPI) data. That labor market tightness being so strong leads to increases in inflationary pressures. Economists widely expected this rise, as they expected an equal rise in both monthly and yearly measures.
Surging gas prices have pushed inflation to a 40 year high. On top of that, businesses are raising prices to cover the costs of recently imposed tariffs on imported products. President Donald Trump’s trade policy, which imposes steep tariffs on most goods entering the United States, has particularly impacted certain categories. As prices for other tariff-exposed goods including home furnishings, toys, and many others have undergone escalations in recent months.
Wednesday’s June inflation data marks a departure from the benign inflation readings we’ve seen prior in 2023. First, falling gas prices and the continuation of a disinflationary trend in housing had helped to keep flipped inflation lower. In addition, weaker-than-typical travel prices helped do the heavy lifting to keep inflation low. Meanwhile, businesses built up inventories in preparation for higher expenses.
That report showed consumer prices up 0.3% in June, in line with economists’ expectations. The annual inflation rate, now at 2.7%, is the highest since February, suggesting a potential upward trend in consumer costs. With the labor market still tight, the demand-side effects of these shifts could continue to impact spending patterns and inflation trends.
In reaction to the CPI release, S&P 500 futures were up by 0.4%, with Nasdaq 100 futures 0.65% higher. Collectively, these movements reflect investor optimism about continued strong economic performance in the face of increasing inflation.