June’s Consumer Price Index report will be released on July 15. Nowcasts project relatively low month-on-month inflation of 0.23% to 0.25%, that’s according to the analysis of the Federal Reserve Bank of Cleveland. If so, that would signal continued subdued inflation. It would also be consistent with cooler inflation readings reported since February of this year.
Inflation would still be running above the Federal Open Market Committee’s 2% goal on an annual basis, with most inflation metrics closer to 3% than 2%. However, some of that deviation from target on an annual basis reflects rising prices between November 2024 and January 2025 and more recent readings have been more subdued.
Upside Risks From Energy and Tariffs
Although, cooling inflation is forecast, the report will be closely watched for the impact of tariffs. So far, tariffs have not had a material impact on CPI inflation readings, but that could change as several firms have stated they plan to raise prices in June and July.
The CPI report will offer an assessment on whether that is occurring. Producer Price Indexes for May showed some moderate inflation in goods prices. That may be a leading indicator of what is coming for CPI inflation, though for now, the implied inflation appears mild. Academic studies have picked up some tariff price increases too, though again these are relatively tame.
Fed Vice Chair for Supervision Michelle Bowman said the following about inflation risks on June 23. “Despite progress on lowering inflation, there are potential upside risks if negotiations result in higher tariffs or if firms raise goods prices independent of any tariff pass-through. Although we have not seen evidence of disruptive impacts on supply chains, changes in global trade patterns could lead to an increase in prices for goods and services. The current conflict in the Middle East or other geopolitical tensions could also lead to higher commodity prices. I am certainly attentive to these inflation risks, but I am not yet seeing a major concern, as some retailers seem unwilling to raise prices for essentials due to high price sensitivity among low-income consumers and as supply chains appear to be largely unaffected so far.”
Energy prices spiked in mid-June on conflict between Israel and Iran, but have now fallen back to close to earlier levels, although oil price volatility remains somewhat elevated. Energy prices matter because they impact the price of many goods and services.
Housing Costs
A major category for the CPI index is shelter costs. This makes up about a third of the overall series, given its importance in U.S. household budgets. Since 2023, shelter price increases have generally eased according to U.S. Bureau of Labor Statistics data, which has helped bring overall CPI inflation closer to the FOMC’s 2% target. To the extent shelter costs continue to cool in the coming months that may offset potential tariff impacts.
The Fed’s Reaction To Inflation
After a brief acceleration in inflation in late 2024 which caused some concern, the FOMC has been encouraged by recent subdued inflation reports since February 2025. However, policymakers are balancing risks from potentially higher inflation against some chance of a deteriorating labor market.
Assuming June delivers another tame inflation reading, then the attention of policymakers may be more focused on labor market risks. For now, jobs data has generally been robust. However, retail sales data saw a sequential decline for May, which could be a one-off datapoint or may point to some softening in the economy. Currently the CME FedWatch Tool implies a 1 in 4 chance of the FOMC cutting rates at their next meeting on July 30.
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