New inflation data shows that President Trump’s tariffs are beginning to bite. The Consumer Price Index rose 2.7% in June, up from 2.4% in May. And it’s not just energy or rent; discretionary items like food, furniture, clothing, and recreation are all climbing.
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This rising pressure has put Thursday’s U.S. retail sales report in sharp focus. For investors, economists, and retailers alike, the report will help answer a critical question: are consumers pulling back, or are they still powering through price hikes?
Retail Sales Are in Focus
Economists expect retail sales to rise 0.2% month over month, reversing May’s surprise 0.9% decline. Strip out vehicles, and the increase could be closer to 0.4%. That’s important because car sales have dipped for three straight months, largely due to consumers front-loading purchases earlier this year to avoid tariff-driven price hikes.
Appliances, electronics, and other big-ticket items may show the same slowdown. There was a rush to buy ahead of expected price increases in Q2, and now that demand may be softening.
Still, the big banks aren’t seeing consumer stress. JPMorgan’s (JPM) CFO Jeremy Barnum said on Tuesday’s earnings call that the average American remains surprisingly steady. “We continue to struggle to see signs of weakness…the consumer basically seems to be fine,” he said.
Banks Signal Confidence, But Watch for Cracks
Wells Fargo (WFC) CEO Charlie Scharf echoed that view. He noted that credit card spending remains up year-over-year and that delinquencies are actually falling. So far, consumer credit health looks solid, with inflation and unemployment in check.
But Scharf also warned of a slower pace ahead. “Spending momentum is softening,” he said. Tariffs are driving uncertainty. That makes shoppers more cautious and more price-sensitive.
According to LSEG’s Jharonne Martis, retailers are preparing for more price-conscious customers. Expect sharper reactions to headlines, fluctuating demand, and a tilt toward value-focused options.
Food Prices May Be the Tipping Point
Grocery costs rose 0.3% in June, and dining out became 0.4% more expensive. These aren’t huge numbers on their own but they hit daily life directly. Bank of America (BAC) economist Aditya Bhave says food-related spending is key to tracking consumer stress.
Restaurant spending dropped 0.9% in May. In June, foot traffic to restaurants was up just 0.1% year over year, according to Placer.ai. If tariffs keep food inflation rising, it could finally wear down American resilience.
What to Watch Next
Thursday’s retail sales data will paint the clearest picture yet of whether Americans are reaching their breaking point. For now, the key takeaway is mixed: spending is holding up, but pressure is building.
If the trend shifts, expect it to ripple through stocks tied to consumer sentiment. Think retailers like Walmart (WMT), Target (TGT), Home Depot (HD), and restaurant chains like McDonald’s (MCD), Chipotle (CMG), and Darden Restaurants (DRI).
Investors can use TipRanks’ Stocks Comparison Tool to track key metrics on these companies and spot any early signs that the tariff squeeze is starting to hit their bottom line.
