U.S. consumer prices rose at their fastest pace in five months in June, signaling the early impact of tariffs on inflation. However, subdued demand and falling service prices may keep the Federal Reserve cautious about rate changes.

Consumer inflation in the U.S. picked up in June, with the Consumer Price Index (CPI) rising 0.3%—the sharpest monthly increase since January—driven by higher costs for goods and housing.

The data suggests early signs of tariff pass-through, particularly following President Donald Trump’s announcement of sweeping new import duties.

Despite this uptick, core inflation remains relatively muted due to easing service prices, including hotel stays and airfares. Economists expect more significant tariff-related price pressures in the coming months, especially on imported goods like appliances and apparel.

Food and fuel also saw modest gains, while used car prices declined. The core CPI, excluding food and energy, rose 0.2% in June and 2.9% annually. Economists say the Fed is likely to keep interest rates unchanged at its upcoming meeting, awaiting more data before making any policy shifts.

While Trump continues to call for rate cuts, most Fed officials remain cautious, pointing to lingering uncertainty over inflation’s trajectory and labor market signals. Market reactions were mixed, with stocks steady and bond yields slightly higher.

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