US Macro Insights: June 2025 CPI Preview
Will there be enough service led weakness to offset the tariff effect on goods?
Summary: After months of undershooting expectations, the June CPI report has upside risks due to one-off factors. CPI is expected to come in slightly higher for both core and headline, but it’s unclear how indicative this will be of the near-term trajectory. Tariffs have likely begun to pass-through to consumer prices for vulnerable goods (i.e. major appliances) but falling import prices of other goods can help to dampen some of the effects going forward. Businesses have broadly less pricing power compared to the last few years as aggregate demand remains weak, evidenced by slower spending growth overall and deflation in discretionary spending services. With each passing month it’s unclear if service-led disinflation can fully offset potential tariffs.
Market Implication: Given the price action, we believe that many in the market place must share some of our views that tariffs have yet to be inflationary. Thus, the worst-case scenario is that CPI categories potentially impacted by tariffs finally see a notably push up in the June reading. That said we tend to think that if we get 0.3% readings it would be because its rounded up (and again its likely priced-in). In many ways the optically stronger than expected NFP report stole some of the thunder from this upcoming CPI. The Fed is no longer in a position to cut rates in July, so to get markets to react we need to see a higher number (i.e. a solid 0.4%) or visible tariff effects. That said, the longer the Fed waits to cut negative carry hurts longs in the very front-end.
