US CPI Rise Highlights Growing Stagflation Risk

Commenting on yesterday’s US CPI data, David Rees, Head of Global Economics at Schroders, said:

"Tariffs loomed large over yesterday’s rise in US inflation, helped up in part by the cost of core goods. For example, household furnishing rose by 1% month-on-month in June. Elsewhere, goods prices were relatively contained, but heightened challenges could be on the horizon if all the Trump administration’s tariff threats are enacted on 1st August.

"If they were to happen, we estimate the effective US import tariff rate could jump to 24%, potentially adding more than 1% to inflation - on top of our CPI forecast for average inflation of 3.1% through to the end of 2026 - and cutting GDP by more than 0.5%.

"While markets appear to assume President Trump will soften his stance, the risk of stagflation in the US is real - especially if rising goods and services prices feed through to a tight labour market."