By David Enna, Tipswatch.com
As economists expected, U.S. all-items inflation moved higher in June, up 0.3% for the month and 2.7% year over year, well above the annual rate in May of 2.4%, the Bureau of Labor Statistics reported.
Core inflation, which removes food and energy, was up 0.2% for the month and 2.9% for the year, up from 2.8% in May. These numbers are seasonally adjusted.
The monthly increases may be showing some effects of U.S. tariffs, but the annual increases can also partly be explained by weak inflation a year ago in June 2024, which surprisingly dipped into deflation at -0.1%. So this year’s annual increase can partly be explained by that low base number a year ago.
Let’s dive into the June details:
- Shelter costs rose a moderate 0.2% in June, helping to keep a lid on core inflation. But these costs are up 3.8% over the 12 months.
- Costs of medical care services increased 0.6% for the month and are up 3.4% for the year.
- Gasoline prices rose 1.0% for the month after falling 2.6% in May. Over the 12 months gas prices have declined 8.3%.
- Electricity costs rose 1% for the month and 5.8% for the year.
- Food at home costs rose 0.3% for the month and are up 2.4% for the year.
- The index for coffee rose 2.2% in June. (Tariffs?)
- Costs of fruits and vegetables increased 0.9% for the month. (Tariffs?)
- Apparel costs rose 0.4% in June after falling 0.4% in May. (Tariffs?)
- Costs of household furnishings rose 1.0% for the month. (Tariffs?)
- Costs of new vehicles fell 0.3% in June, same as in May and are up only 0.2% year over year.
- Costs of used cars and trucks fell 0.7% for the month.
Overall, this is a fairly tame inflation report, matching expectations. There does appear to be some tariff effect in these price increases, but at this point it is not substantial. Eventually, I’d expect to see prices for new and used vehicles to begin rising, as permanent tariff rates settle in.
Here is the trend in annual all-items and core inflation over the last 12 months, with all-items inflation showing a clear upswing higher.:
And this trend could continue for several months because of “base-effect” increases from weak inflation a year ago. It seems likely that all-items inflation could rise above 3.0% in coming months:
What this means for TIPS and I Bonds
Investors in Treasury Inflation-Protected Securities and U.S. Series I Savings Bonds are also interested in non-seasonally adjusted inflation, which is used to adjust principal balances for TIPS and set future interest rates for I Bonds. For June, the BLS set the inflation index at 322.561, an increase of 0.34% over May’s number.
For TIPS. The June inflation index means that principal balances for all TIPS will increase by 0.34% in August, after a 0.21% increase in July. Here are the new August Inflation Indexes for all TIPS.
For I Bonds. June marks the mid-point of a six-month stretch that will determine the I Bond’s new inflation-adjusted variable rate, which will be reset on November 1. So far, three months in, inflation has increased 0.86%. That translates to a variable rate of 1.72%, but it’s too early to make any judgments, especially because of coming tariff uncertainty. Here are the data:
What this means for the Social Security COLA
June inflation sets the baseline for determining Social Security’s cost-of-living adjustment for 2026. The actual calculation depends on the average of a different index — the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) — over the months of July to September.
As of June, CPI-W has increased 2.6% year over year. That’s the baseline and it most likely will NOT be next year’s increase. I will be writing more on this topic in coming days. You will soon see a lot of projections in the media — most of them should be ignored.
What this means for future interest rates
I’d say “not much.” The core inflation monthly number — at 0.2% — was below expectations, even though the annual rate ticked higher to 2.9%. This isn’t a horrible inflation report, but it is showing hints of the effects of U.S. tariffs, which could magnify in future months. Plus, the weak inflation numbers from summer 2024 are going to put 2025 inflation on a higher track.
From Bloomberg’s Anna Wong:
Monthly core CPI inflation picked up from very soft to soft in June as firms passed tariff costs through to consumer prices at a brisker pace. Those gains were offset by disinflation for vehicles and hotels as consumers pull back on non-essential expenses. …
While the soft CPI might appear to boost the odds of a September rate cut, we expect a hot June print for the Fed’s preferred inflation gauge — the core PCE deflator, due out July 31. PCE prints may stay elevated all summer.
At this point, I’d say the Fed will continue to be on hold through the summer as it waits to see how the tariff rollout proceeds.
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David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without
Treasury Inflation-Protected Securities 
I was happy to get the nearly 2% above inflation on this issue. I'm also still nibbling at long-term bonds…