By Chioma Obinagwam
Consumer prices in the US climbed for the second month in a row, reaching 2.7% year-on-year in June, up 30 basis points from May’s 2.4% year-on-year, according to the US Bureau of Labour Statistics (BLS). Food inflation edged up to 3.0% year-on-year (May: +2.9% y/y), driven by a slight increase in food at home prices (+2.4% y/y vs May: +2.2% y/y), while food away from home prices held steady at 3.8% year-on-year.
Core Inflation and Energy Trends
Core inflation also rose by 10 basis points to 2.9% year-on-year (May: 2.8% y/y), fueled by higher costs for medical care, motor vehicle insurance, and recreation, which offset slower growth in shelter costs. Energy inflation eased, declining by 0.8% year-on-year (May: -3.5% y/y), with fuel oil prices contracting less sharply (-4.7% y/y vs May: -8.6% y/y), though gasoline prices fell further (-8.3% y/y vs May: -1.2% y/y). Month-on-month, headline inflation increased by 0.3% in June (May: +0.1% m/m).
Tariff Impacts and Fed Outlook
Reacting to the report by the BLS, Cordros Research, anticipates inflationary pressures to persist in the near term, driven by the initial impact of recent tariffs on appliances, electronics, and furnishings. While some retailers are still depleting pre-tariff stock, price hikes in tariff-affected goods like appliances, furniture, and toys suggest growing pressure on consumer prices. As these inventories dwindle, we expect inflation to intensify in the second half of 2025. Consequently, we expect the US Fed to keep the funds rate unchanged at the next monetary policy meeting, in line with the CME FedWatch Tool’s 97.4% probability of a “HOLD” decision on July 30.
China’s Economic Growth Surpasses Expectations
Where Q2 Growth is driven by policy and exports.
China’s economy, the world’s second-largest, grew by 5.2% year-on-year in Q2-25, surpassing market expectations of 5.1% year-on-year, per data from the National Bureau of Statistics (NBS). This compares to 5.4% year-on-year in Q1-25 and 4.7% year-on-year in Q2-24. Growth was bolstered by policy-driven infrastructure and industrial production, as well as preemptive export surges ahead of looming US tariffs.
Domestic Demand Challenges Persist
However, weak domestic demand persisted due to a struggling property market and cautious consumer spending. Industrial output showed strength, but retail sales and property investment lagged, signaling fragile economic momentum. Quarter-on-quarter, growth was 1.1% (Q1-25: +1.2% q/q).
Trade Truce and Growth Concerns
Looking ahead, we foresee challenges for China’s economy in H2-25, despite a temporary de-escalation in trade tensions following a mutual tariff reduction by the US (from 145.0% to 30.0%) and China (from 125.0% to 10.0%). This 90-day truce offers short-term relief for exporters and manufacturers, but uncertainty lingers as the agreement expires in mid-August. Ongoing property sector weakness and lackluster household consumption continue to drag on domestic demand, limiting China’s ability to achieve its 2025FY growth target of 5.0%. Notably, the IMF recently downgraded China’s 2025 growth forecast to 4.0% y/y (Prev. estimate: 4.6% y/y | 2024FY: 5.0% y/y).
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