Investors reacted negatively as initial indicators of tariff-related inflation emerged from U.S. consumer prices. There might be more difficulties on the horizon. The data from the consumer price index (CPI) in the U.S for June seems to display the first signs of inflation related to tariffs. With the anticipatory pulling back of Federal Reserve’s rate cut forecast for 2025, market values declined while the dollar strengthened.
A further decline in the overall market sentiment could be expected if the producer price index (PPI) data indicates narrowing profit margins. As predicted, U.S. inflation showed an uptick in June. The primary consumer price index (CPI) escalated by 2.7% year-over-year, which was in alignment with the predictions made by economic experts.
Removing the unstable components of food and energy prices from the equation – which is usually the focus of Federal Reserve authorities – resulted in a value of 2.9%, slightly below the predicted 3% before the announcement. This result is indicative of the swiftest increase in American price growth in quartet months.
The core services sector was a significant contributor again, accounting for 2.24 percentage points (ppt) of the main readings. However, the core goods demonstrated a noticeable upswing. While the upsurge in this sector was mere 0.13ppt, it was also the highest boost from this sector since July of 2023.
Data from U.S. consumer prices reveals the preliminary signs of inflation related to tariffs. Variations in monthly contributions further assert this point. The upward trend from the core services sector indicated an increase of 0.02ppt from May to June. From the core goods side, an additional 0.08ppt was recorded, implying a more potent inflationary force from this sector.
This emergence could suggest that the delayed effects of numerous tariff policies initiated by the Trump administration since the commencement of this year are finally becoming evident in the records. The markets appeared to analyze the readings in this vein, with price action indicating this result will diminish the possibility of imminent Fed interest rate reductions.
The Federal funds futures now incorporate 38 basis points (bps) in cuts this year, showcasing the least pessimistic reading in the prior five months. Conversely, the inferred course for 2026 has swung, with an addition of 67.5bps now under consideration. This figure is currently the most pessimistic since the inception of futures trading three years prior.
Markets showed disapproval towards U.S. CPI data, signaling that PPI might evoke a similar reaction. The investors clearly expressed their dissatisfaction. Despite reaching new heights intra-day, stocks ended the session with deficits. The S&P 500 experienced a drop of 0.43% after being traded as high as 0.51% earlier in the day.
The Nasdaq 100 just managed to break even, nullifying an earlier rally that had reached 0.81%. The small-cap Russell 2000 fell by a substantial 1.95% marking its highest daily loss in a couple of months. Simultaneously, yields on Treasury bonds increased across the board while gold prices took a tumble. However, gold stayed within its three-week range.
The U.S. dollar witnessed a surge, fueled by higher rates and reclaimed its status as a safe asset in markets characterized by risk-off traders. Prices of commodities susceptible to economic cycles and market sentiment like crude oil and bitcoin dropped. The forthcoming release is the data for June’s producer price index (PPI).
There’s an expectation of a slight decline in the growth of wholesale prices. However, traders’ interest would be piqued by the details within the report. If the reported decrease stems from further squeeze on wholesalers’ profit margins due to attempts made by firms to shield consumers from tariff-triggered price elevations, the market’s negative response might amplify.