Inflation Picks Up as Tariffs Take Hold

Inflation rose to a four-month high in June as consumer prices began to reflect tariff policy. The Consumer Price Index (CPI) increased from 2.4% in May to 2.7% in June year over year, according to the Bureau of Labor Statistics. Despite the increase, core inflation came in softer than expected, suggesting full tariff impacts will likely push inflation even higher in the coming months. Meanwhile, housing inflation continued to show signs of cooling.

During the past 12 months, on a non-seasonally adjusted basis, the CPI rose by 2.7% in June — the highest since February 2025. Excluding the volatile food and energy components, the core CPI increased by 2.9% over the past 12 months. A large portion (more than 40%) of the core CPI is the housing shelter index, which increased 3.8% over the year — the lowest reading since November 2021. Meanwhile, the component index of food rose by 3%, and the energy component index fell by 0.8%.

On a monthly basis, the CPI rose by 0.3% in June (seasonally adjusted) after a 0.1% increase in May. The “core” CPI increased by 0.2% in June. The index for shelter rose by 0.2% in June following an increase of 0.3% in May.

Although the Fed rate cuts could ease some housing market pressure, its ability to address rising housing costs is limited, as these increases are driven by a lack of affordable supply and increasing development costs. Tight monetary policy actually hurts housing supply by increasing AD&C financing costs. Additional housing supply is the primary solution to tame housing inflation and overall inflation. This emphasizes why the cost of construction, including the cost of building materials, matters not just for housing but also the inflation outlook and the path of future monetary policy.

Fan-Yu Kuo, NAHB senior economist of forecasting and analysis, provides more details in this Eye on Housing post.