US consumers continued to spend in June, powering the economy in the process, despite tariff-related price hikes becoming more present on store shelves and online.
Consumer spending rose 0.3% from May, when spending was flat, according to Commerce Department data released Thursday. Adjusted for inflation, spending ticked up 0.1%.
The report — which provides a comprehensive look on how prices are changing as well as how households’ income, spending and savings are faring — showed that inflation picked up as well last month.
The Personal Consumption Expenditures price index — the inflation gauge the Federal Reserve uses for its 2% target rate — rose 0.3% on a monthly basis, which lifted the annual rate to 2.6%, the highest since February.
Tariffs are starting to leave a bigger mark on overall inflation; however, consumers, whose spending powers more than two-thirds of economic activity, are largely “holding up OK,” Gus Faucher, chief economist of The PNC Financial Services Group, told CNN in an interview.
Personal income rose 0.3% in June and the savings rate held steady at 4.5%, Thursday’s report showed.
“I think we’re seeing modest growth in consumer spending,” he said. “The economy has definitely downshifted over the past year; we’re seeing slower job growth, slower income growth and along with that is coming slower consumer spending growth.”
“You add on top of that, tariffs — both the price increases and the uncertainty that’s created — and consumers have turned a bit more cautious,” he added.
Economists were expecting PCE to rise 0.3% from 0.2% in May and accelerate on an annual basis to 2.5% from the initially reported 2.3% increase (May’s annual inflation rate was revised upward to 2.4% in Thursday’s report).
Excluding energy and food, which tend to be quite volatile, the “core” PCE index showed price hikes picked up speed in June, rising 0.3% from May (the fastest gain in four months), and holding at an annual rate of 2.8%
The PCE price index was expected to heat up slightly in part because of rising gas prices, which had been falling for much of the year, as well as pricier goods from businesses passing along tariff-related costs to consumers.
That was indeed the case, according to Thursday’s report: Energy prices shot up 0.9% after falling 1% the month before. Goods prices rose 0.4% (durable up 0.5%, non-durable goods up 0.4%), marking the highest monthly rate since January when prices bumped higher after holiday season discounts.
“Durable goods prices were up a half of a percent,” Faucher said. “These things can bounce around form month to month, and I don’t want to read too much into everything; but, certainly, that’s suggestive of tariff costs being passed along to consumers, and I think we’re going to see more of that over the next few months.”
President Donald Trump’s trade policies, which include widespread (but highly volatile) tariffs on imported goods from countries around the world, are starting to result in higher prices for consumers as well as elevated inflation rates.
The tariffs are paid by the companies that import the goods, but then those price increases are often spread out through the supply chain and, oftentimes, passed onto consumers in some form.
And while the higher tariffs aren’t expected to trigger an inflationary surge like Americans saw in 2022, the price hikes won’t be easy for everyone, Faucher said.
“It’s going to be uncomfortable for consumers,” he said. “I think that they’re going to start to see it, and they’re going to notice that their paychecks aren’t going as far as they were.”
Stock futures were relatively unchanged after the latest spending and inflation data. Dow futures were up 100 points, or 0.23%. S&P 500 futures rose 0.92% and Nasdaq 100 futures gained 1.33%.
This story has been updated with additional developments and context.
