June Inflation Report Will Show Impact of Tariffs. Is the Market Ready?

(Shelby Tauber/Bloomberg)

The June inflation data due this coming week should show at least some preliminary impacts from tariffs. How persistent these price pressures are seen to be will determine if rate cuts will be on the table soon.

The consumer price index, slated for release on Tuesday, is expected by economists to show a 0.3% increase for last month, both overall and for the core measure excluding food and energy costs. That would lift the CPI’s year-over-year increase to 2.7% for the headline number and to 3.0% for the core gauge, for increases of 0.3 and 0.2 percentage points, respectively, from May.

Inflation in June wasn’t busting out all over. Used-car prices were seen as a major culprit, with auto buyers seeking out secondhand wheels as prices of new cars moved further out of reach, in part owing to tariffs. Key Federal Open Market Committee members are slated to speak after the CPI report, including New York Federal Reserve President John Williams on Wednesday and Fed governor Christopher Waller on Thursday, which should give a sense of how these committee voters view the numbers.

Beyond one month’s data, an important question will be whether the tariffs spur higher inflationary expectations or act as a massive tax increase, as High Frequency Economics chief Carl Weinberg suggests. On that score, Piper Sandler economist Jake Oubina writes that cash-strapped consumers may tighten their belts as they confront tariff-induced price hikes and increased job uncertainty. The potential headwind from tariffs is 10 times the stimulus coming from the One Big Beautiful Bill, he adds in a client note.

Perhaps, but the top 10% of U.S. households drive half of all consumer spending. That cohort is riding high, with the S&P 500 index and Nasdaq Composite closing at records on Thursday. Tech continues to power the advance, with Nvidia topping $4 trillion in market value, which exceeds the total capitalization of the U.K., German, or French equity markets, Deutsche Bank strategist Jim Reid observed in a client note Friday.

As second-quarter earnings reporting season starts in earnest this coming week, Corporate America should give a better idea of how they’re dealing with tariffs, after previously having withdrawn guidance in many cases. With major indexes and trader sentiment indicators at highs, investors seem confident they’re coping just fine.

Write to Randall W. Forsyth at randall.forsyth@barrons.com