June 25, 2025: Where’s the Inflation?

The Federal Reserve has been patiently watching and waiting for tariff impacts to show up in inflation data. However, inflation has been surprisingly soft over the past few months. Does that mean tariffs are not affecting inflation? Not quite.

Prices of some goods have already increased. For example, major appliance inflation rose from -3.6% in April to 1.5% in May.¹ Price increases expected in other goods, like apparel, have not yet materialized. One explanation is that many companies front-ran tariffs in the first quarter and are still working through existing inventories. When those inventories run out and they import more goods, they may charge higher prices. Another explanation is that less spending and more saving among consumers is restricting businesses’ ability to pass along higher costs. Consumers simply do not have the appetite to pay higher prices.

The pullback in consumer spending also at least partially explains why services inflation has fallen. Consumers—facing an uncertain macro environment not in small part due to tariffs—have reduced spending on services, such as transportation and lodging. Lower demand means service providers must lower their prices. The decline in services inflation has more than offset any increase in goods inflation, resulting in the soft headline inflation numbers seen so far.

1. Bloomberg, Contributions to U.S. CPI Index YoY, as of 6/11/2025.

Weekly Market Update: June 25, 2025