June PCE Forecasts Show Tariffs Boosting Inflation Pressures

Key Takeaways

• The annual rate of PCE inflation is expected to rise to 2.5% from 2.3% in May.
• President Trump’s tariffs are beginning to put upward pressure on goods prices.
• The inflation rate is still higher than the Federal Reserve’s 2% target.

Forecasts for the June Personal Consumption Expenditures Price Index report show that inflation rose slightly last month, thanks to the impact of President Donald Trump’s tariff increases.

Overall, economists are expecting that consumer prices as measured by the PCE index rose 0.2% on a monthly basis and 2.5% on an annual basis in June, according to FactSet’s consensus estimates. That would be an acceleration from May. Excluding volatile food and energy prices, economists expect that core PCE rose 0.29% on a monthly basis and remained steady at 2.70% on an annual basis. Economists at Bank of America recently suggested that annual PCE inflation could his 3% by July, far above the Federal Reserve’s 2% target.

June PCE Report Highlights

• PCE report release date and time: Thursday, July 31, at 8:30 a.m. EDT
• The PCE Price Index is forecast to have risen by 0.20% in June, up from 0.14% in May.
• Core PCE is expected to have risen 0.29% in June, up from 0.18 in May.
• Year over year, the PCE Price Index is forecast to have risen 2.5% in June, up from 2.5% in May.
• Core PCE year over year is expected to have risen 2.7% in June, the same as in May.

Inflation Picked Up in June

For months, investors waited for signs that new import levies imposed by the Trump administration were putting upward pressure on inflation. Those signs are finally materializing, most clearly in the Consumer Price Index report (a separate measure of inflation) released earlier this month. That report showed higher prices across tariff-sensitive categories like furniture, toys, apparel, and appliances.

“The June CPI was your first clear evidence that tariffs are pushing up core goods prices,” says Ryan Sweet, chief US economist at Oxford Economics. He thinks this effect will also be visible in the PCE data for June and throughout the rest of the summer. His forecast aligned with the consensus call for 0.29% core PCE inflation. Overall, Sweet asserts that many of the disinflationary forces that helped keep price growth lower in April, May, and even some of June (like a large drop in energy prices) are in the past.

One wild card for the PCE report specifically could come from portfolio management fees—the price asset managers charge clients to manage their investments or provide advice. These fees typically rise with the value of a client’s portfolio. They’re weighted more heavily in that index than in the CPI, and could push the overall inflation rate higher. “With the stock market bouncing back, you can start to see that show up more in the PCE deflator,” Sweet explains.

Fed in Focus

The Fed is widely expected to hold interest rates steady on Wednesday, but this month’s meeting is likely to bring lively debate about whether the bump in inflation caused by the tariffs is temporary or a more pervasive shift.

While markets see a nearly 100% chance that the Fed holds rates steady at its meeting on Wednesday, bond futures traders see 63% odds of a cut in September, according to the CME FedWatch Tool.

“The Fed has made it very clear that they’re in a wait-and-see approach,” Sweet says. “They’re anticipating some inflation from tariffs, but they’re also expecting [tariffs] to weigh on the economy.”

So far, there has not been any significant damage to economic growth or the labor market. “That leaves the door open for [the Fed] to be patient” and determine how pervasive the effects from tariffs are likely to be, Sweet explains. His forecast is for the next interest rate cut to occur in December, though he notes that monetary policy will depend on the health of the labor market.