Truflation: US Monthly Inflation Report – June 2025

Executive Summary

The mantra at present is that the US economy is in pretty good shape.  Inflation is down from the highs to now 2.4% year on year according to the BLS, unemployment rate has been holding steady at 4.1%, so overall the assumption is pretty healthy.

It is difficult to see how the Federal Reserve would change their stance of the wait and learn more from the data given the healthiness of the economy, especially with the coming effects of the tariff.  The majority of the FOMC participants believe it is appropriate to start reducing rates again later this year and no doubt will be dependent on incoming data.

At Truflation we believe that cracks are appearing in the economy and perhaps it is not as strong as it is believed. GDP fell -0.5% in Quarter 1, due to the net exports, but personal spending wasn’t great either with a +0.5% growth, exhibiting the lowest quarter on quarter since the 2020 recession. Looking at Q2, the GDPNow forecast by the Atlanta Fed, expects a Q2 GDP growth of 2.6% but if the impact of net exports are removed the GDP growth for Q2 would be a negative -0.9%.

Looking at the underlying economy, consumer spending, which accounts for more than two thirds of the economy, has continued to slow with May posting an unexpected decline of -0.1% month on month.  The boost from the pre-emptive buying ahead of the tariffs has faded while inflation maintained a moderate pace of increase.  This cautious consumer mood has continued to be reflected in the savings rate which remains above 4.5%.

Exhibit 1 – US Personal Spending (YoY & MoM)

Source: Bureau of Economic Analysis, Personal Income and Outlays Report

If we ignore the tariffs for a second, inflation is behaving pretty much as Truflation has been  expecting, with inflation accelerating until the end of the year.  The impact of the tariffs have yet to really come through in the data and once it does it will likely drive up prices, especially through the summer as the impact trickles down to the consumers. These tariffs have led businesses and households to front run imports and goods purchases to avoid higher prices from duties.  The challenge is when, how much and for how long do these tariffs come into play.  Japan, Korea (on 25% each), Vietnam (20%), the EU and Mexico (30%), Malaysia, South Africa (as high as 40%) have been announced and are scheduled to come into effect on the 1st of August.

Then we have the labor market which has seen an average 3-month payroll of 150k which looks strong combined with an unemployment rate of 4.1%. However, looking at the initial and continued unemployment claims there is an acceleration which is now above the pre pandemic levels. Nonfarm payrolls have been relatively flat in recent months, with another sign of weakening labor market being the ADP data who announced private employers reducing their workforce by 33,000 jobs in June. A drop is certainly rare but there is certainly a hesitancy to hire and a reluctance to replace departing workers, which no doubt has led to the job losses this month.   These two factors will impact the unemployment rate in due course and when it does, it will no doubt go up quickly.  

The impact on the Federal Reserve is if they do cut interest rates, will inflation subsequently emerge? With Powell's term likely to come to an end in May 2026, he will not want to leave a legacy as the Fed Chair who let inflation run loose and didn’t control it against the 2% target  before the end of his term. CME FedWatch highlights that 93% expect no rate cuts in the July meeting but by letting the rates remain as they are, the Fed is creating more economic restrictions to achieve the 2% target.

The key figure in the short term to watch will be inflation rate and the impacts of tariffs but also the unemployment rate and if this creeps up then we might likely see rate cuts as then most likely the recession would take care of the inflation target.  

Recent inflation trends

So far the impact of the tariffs have been difficult to spot in the hard economic data, but this is about to change.  The BLS Consumer Price Index Report is expected to show a notable uptick in inflation, according to the Bloomberg consensus forecast.  The consensus forecast for the CPI is to rise to 2.6% year on year in June up from 2.4% in May.  

An uptick in-line with expectations could give ammunition to experts who have predicted that the import taxes would show up in prices sooner or later as manufacturers, importers and retailers pass the cost of duties down the supply chain. The tariff boost to consumer prices is expected to be undeniable in June’s data but this is not a united view with certain tariff sensitive components likely to rise in June but the overall impact from tariffs should remain limited. The medium-term outlook will exert more inflationary pressures but the timings of an inflation acceleration remain uncertain.

This diverging view has translated into the broad forecasting range for this month: from 2.5% to 2.7%. Truflation is expecting the increase to come in at 2.5% on an annualized basis and this gradual rise as this is very much just the beginning. 

Truflation’s view is for a gradual price increase which will be a slow burn for a number of reasons: 

• Tariffs being applied on a staggered basis: Earliest tariffs went into effect in March with steel, aluminum and China, but the bulk weren’t announced or applied until April or later.

• Trade policies are in a state of flux: Announcements have been postponed, removed or increased / decreased as terms are finalized.

• Transportation takes time: From the most recent order to the delivery of the goods can take weeks / months to reach the US from other countries.  Then once in the US it doesn’t necessarily hit the shelves the next day. There is domestic transport times combined with imported products are not always finished products and still have to go through manufacturing.

• Inventories were loaded up in Q1: Businesses frontloaded import orders to get ahead of the tariffs which have no doubt postponed or lessened the impact of price rises.

• Some costs are being absorbed: Some foreign exporters are absorbing some of the added costs, with Goldman Sachs putting that share at 20%.  The remaining 80% is expected to be split by US businesses and consumers, with eventually about 70% of the tariffs being passed on to the consumers.

• Seasonal Impact: In the summer the US economy has a greater dependency on services when spending is directed more at travel, recreation and leisure.  With goods playing a more pivotal role in household budgets come fall and winter when back to school season, holiday season of Halloween, Thanksgiving and Christmas comes into play.

• Inflation index is comprehensive: Rising goods prices are showing up but are being overshadowed by factors such as falling gas prices and continued slowing price hikes for services in particular rent and housing. Thus at this point inflation has been relatively muted.

Truflation data highlights the impact of tariffs on the prices of goods as they are the driving force of upwards movement of prices and have seen a continued acceleration, while the more volatile categories of food and energy have continued their de-acceleration. Services on the other hand has seen a slowdown in prices with an increased competitiveness in the market but also remain partially stubborn given the continued higher wage growth.

Exhibit 2 – Truflation key inflationary metrics: Goods vs Services vs Core Inflation

The concern for the services sector, according to the Institute for Supply Management, is that although the economic activity in the service sector has grown in June after a month of contraction, the price index registered a 1.2% point decline from the May number.  Manufacturing on the other hand contracted for the 4th consecutive month in June, with suppliers taking the longest time in nearly three years to deliver input amid tariffs. The tariffs uncertainty has made it difficult for businesses to plan ahead.

At Truflation we are seeing inflation start to take a steady increase in goods, but it is being offset by the volatile categories and services. We certainly expect the prices of goods to accelerate in the coming months and continue to drive inflation upwards.

Exhibit 3 – Truflation Category Inflation Drivers

With the inflation experiencing mixed behaviours, it is clear the risks are to the upside.  The most significant upward contributing categories to inflation in June were coming from Transportation, Household Durables and Education.  While housing, food and utilities being the biggest downward contributors. 

Sector-Specific Inflation Analysis

• Education: Prices rose +0.5% MoM and +2.0 YoY due to decreased public funding as state budgets are being constrained, increased demand and rising operational costs (rising faculty salaries, admin staff and upgrading facilities). These factors are leading to higher tuition fees and a greater reliance on student loans.

• Transportation: Prices are up +0.1% MoM and  2.0% YoY.  Average transaction prices on new and used vehicles had been ticking down at the beginning of 2025, but the tariffs implemented in early April have driven prices higher but not dramatically, with further price hikes still to come.  Average prices climbed to $50,968  from April prices of $48,799.  It is believed that dealer profitability are also being squeezed as the costs are rising but raising retail prices in this environment is challenging. On the opposite side are gas prices which have come down as expected, due to the increased supply of crude oil.  Lower crude oil prices are contributing to the decline.

• Alcohol & Tobacco: Prices experienced +0.3% MoM and +2.2% YoY increase which in part is driven by the 25% tariffs on steel and aluminium combined with the duties on Canada and Mexico.

• Household Durables: Prices experienced an increase of +0.1% MoM and +4.1% YoY due to a combination of tariffs, particularly those on imports from China and an increase in logistical costs.

• Housing: Overall housing prices decline -0.5% MoM and +0.8% YoY.  Rentals continued to come down from record highs as supply boosts vacancy and demand slows from the record highs in 2022. The owned housing has come down as well.  Home buying and selling remained subdued due to high mortgage rates.   Lower interest rates will attract more buyers and sellers to the market which will no doubt increase mobility.  Inventory has also increased +6.2% MoM to now representing 4.6 months of supply of unsold inventory, up from 3.8 months a year ago.  This is helping to bring prices down. 

• Food: Prices de-accelerated in June -0.5% MoM and +3.0% YoY given declines in sugar, soybean, coffee, corn, cocoa commodity prices combined with increased competition and cutting prices offering more low cost options to attract shoppers. Finally consumers are being more frugal and adopting shrinkflation practices.

• Utilities: Prices declined -0.3% MoM and +2.1% YoY and was evident across all the sub-categories in particular electricity and water due to local factors but is expected to increase in the near future. 

Longer term outlook

Moving on from June, it is clear from Truflation’s perceptive that the year on year BLS reported CPI is at a turning point. The seemingly muted headline inflation numbers don’t tell the full story as prices of goods, particularly in tariff exposed categories, are already on the rise eg prices of household appliances, household furnishings, toys, clothing and footwear etc.  It is anticipated that prices will rise further and broader in the coming months as tariffs ripple through the supply chain.  Given the ongoing pushback on higher prices, there is an expectation that shrinkflation will rise and private label will expand further.

The current inflation expectation, which essentially is a measure of how much consumers are concerned that inflation will worsen, is not helped by the fears of higher prices from tariffs, and as a result has kept the consumer 12 month expectations at high levels although this has cooled marginally.

Exhibit 4 – Consumer Inflation Expectations (2% is the Fed Target)

Source: University of Michigan & Federal Reserve Bank of New York

Higher inflation expectations can also be self-fulfilling, as Americans think prices will rise and they can take steps that push up costs further, such as asking for higher wages. You combine this with the overall employment market, we are likely to see more upward inflationary pressures on goods as well as services. This is a story about inflation as well as about economic growth.

Conclusion

In the short to medium term, we are going to have a couple of one-time adjustments to inflation with the question of how resilient the consumer remains supporting growth with increased indicators that should be at a minimum a note of caution. 

APPENDIX A

Truflation Category Percentage Change Data

Month-over-Month and Year-over-Year

All Data is based on June 2025

Truflation US Inflation Update - June 2025

Report Presentation Deck

TF 2025 - Inflation Report - US - M6 - Presentation.pptx.pdf

2 MB

About Truflation

Truflation provides a set of independent inflation indexes drawing on 30+ data partners/sources and more than 15 million product prices across the US. These indexes are released daily, making it one of the most up-to-date and comprehensive inflation measurement tools in the world. Truflation has been leveraging this measurement tool to predict the BLS CPI number, with a 99.94% accuracy in predicting inflation in the last 12 months.

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