By Gregory Heym, BHS Chief Economist and and host of Crossing The Line

This week, we have some quick thoughts on inflation and retail sales before The Line takes off for vacation.

Consumer Prices 2.7% Higher than a Year Ago

Here’s what you need to know about the June CPI report:

• Both the monthly (0.3%) and annual (2.7%) increases were in line with expectations.




• Core CPI—which excludes food and energy prices—rose 0.2% last month, and 2.9% over the past year. The monthly increase was slightly below expectations.




• Part of the reason the annual increase in CPI and Core CPI rose was low inflation readings a year ago.




• The biggest contributor to the monthly increase in CPI remained housing.

Many analysts were quick to say the rise in the annual rate of inflation meant that the President’s tariffs were starting to drive up prices. As I’ve said before, while it’s certainly possible the prices of goods being tariffed will increase, that doesn’t mean we will see a broader increase in prices. If the money supply doesn’t grow significantly, higher spending on some goods and services means consumers will have less to spend elsewhere.

June Retail Sales Rose More than Expected

Retail sales increased 0.6% last month, after a 0.9% decline in May. Economists polled by Reuters were looking for just a 0.1% increase in June sales, so this data is much better than expected. Sales last month were driven by motor vehicles and parts (+1.2%) and clothing (+0.9%).

That all sounds good, but the big question is whether sales rose because of price increases on tariffed goods. Why does every section of The Line always seem to mention tariffs?

Anyway, since retail sales are not adjusted for inflation there’s no way of knowing exactly what impact rising prices had on this June increase. Since sales were up 0.6% in June while prices rose 0.3%, we could attribute half the increase to inflation, but the hard part is saying how much of that inflation was caused by tariffs.

We will get the final word on consumer spending when the report on personal consumption expenditures comes out later this month, but all you need to know for now is that consumers are still consuming.

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