What To Expect From Inflation In The Second Half Of 2025

The second half of 2025 will be crucial for inflation, as it will deliver a clear verdict on how much President Donald Trump’s sweeping tariff campaign has pushed up consumer prices.

Many forecasters expect inflation measures to surge in the second half of the year as importers pass the cost of President Donald Trump’s tariffs down the supply chain and, to some extent, to consumers.

Several of Trump’s tariffs on international trading partners went into effect in March, and more were added in subsequent months. As a result, importers paid an average tariff of 15.8% as of mid-June, the highest since 1936, according to the Yale Budget Lab. Businesses say they’re passing many of those costs along to their customers.

What Tariffs Mean For Consumer Prices

Those higher prices haven’t shown up in the most recent inflation data. But that could soon change as the year enters its second half.

Consumer prices, as measured by core Personal Consumption Expenditures (PCE) inflation, will likely rise 4.3% over the year by the fourth quarter, according to Diane Swonk, chief economist at KPMG. That would be a notable acceleration from the most recent readings, and trending away from the Federal Reserve’s target of a 2% inflation rate. (Core inflation excludes prices for food and energy, which can bounce up and down for reasons other than broader inflation trends.)

However, not all economists think it will get that high. A survey of professional forecasters by the Federal Reserve Bank of Philadelphia found the median prediction for core PCE inflation calls for it to peak at 3.4% annually in the third quarter, and then begin to subside.

Stagflaition Is A Real Possibility

Any inflation increase in line with the median expectations would be far less severe than the surge that followed the pandemic. At the time, price increases accelerated to their highest rate in more than 40 years.

Still, household budgets will feel the pinch in 2025, Torsten Slok, chief economist at Apollo, wrote in a note. This fresh round of price increases will stack on top of those that consumers have already absorbed in the post-pandemic era. And unlike last time, there are no stimulus checks or any other government support to help cushion the blow.

A new surge of inflation could push the economy toward “stagflation,” or a state of slow economic growth accompanied by accelerating prices, Slok said.

It’s not clear whether a second-half price uptick would be a one-time jump or if it would set off a cycle of accelerating price increases. Federal Reserve Chair Jerome Powell noted that risk on June 24 when he testified before Congress.