Spending by consumers increased a bit last month, however, inflation also saw an uptick
In June 2023, the personal consumption expenditures (PCE) price index rose by 0.3%, marking a 2.6% increase year-over-year. This increase was primarily driven by tariff-inflated import costs, according to the latest spending and inflation data.
S&P 500 futures saw a rise of 0.92%, while the Dow Jones Industrial Average climbed 100 points, or 0.23%. Nasdaq 100 futures also gained 1.33%. These gains suggest that the stock market remains relatively resilient in the face of rising inflation.
Consumer spending rose 0.3% from May, indicating that US consumers continued to spend in June, contributing to the economy. However, essential goods shortages due to tariffs reduced access for vulnerable consumers, making it especially difficult for them to find or afford critical items.
Some luxury brands, like Procter & Gamble, explicitly raised prices to offset tariffs. However, tariff-driven price hikes became rarer among consumer brands overall. Tariffs raised prices consumers pay without alternatives in domestic production, particularly for food imports such as coffee, fish, alcohol, and bananas.
The annual rate of "core" PCE inflation remained at 2.8% in June, marking the fastest gain in four months when excluding energy and food. Energy prices increased by 0.9% in June, following a decrease of 1% in May.
Economists expected the PCE to rise 0.3% from 0.2% in May. The annual rate of PCE inflation was expected to accelerate to 2.5%, but it increased to 2.6%.
In summary, tariff-related price hikes in June 2023 exacerbated inflation and constrained consumer spending, particularly harming lower-income groups through higher prices and product shortages. This situation is likely to persist in the second half of the year as businesses pass on tariff costs to consumers.
| Impact | Details | |------------------------|---------------------------------------------------------------------------------------------------------------| | Inflation | PCE price index rose 0.3% in June, 2.6% year-over-year, driven by tariff-inflated import costs[1]. | | Consumer spending | Moderate rise, but essential goods shortages due to tariffs reduced access for vulnerable consumers[2]. | | Price hikes on brands | Some luxury brands passed tariffs fully; broader brands less frequently increased prices directly[2]. | | Food prices | Tariffs raised costs on key imports (coffee, fish, bananas) where domestic substitutes scarce leading to higher consumer prices[3].|
The escalating tariff-induced inflation seems to pose a challenge for the finance sector, as businesses might pass on these added costs to consumers, potentially causing a strain on household budgets, especially for lower-income households [Inflation, Consumer spending].
The ongoing tariff-related price hikes may continue to impact the economy, particularly the business sector, as tariff costs could persistently increase expenses for consumers, potentially slowing overall economic growth [Price hikes on brands, Impact].
