WASHINGTON, D.C.: U.S. business activity showed signs of softening in June while inflationary pressures continued to build, driven in part by President Donald Trump's sweeping tariffs and rising global uncertainty.

The developments have complicated the Federal Reserve's interest rate plans and raised concerns about stagflation as the second half of the year begins.

S&P Global's flash U.S. Composite PMI Output Index, which measures both manufacturing and services activity, dipped slightly to 52.8 in June from 53.0 in May. While still in expansion territory, the decline reflects weakening momentum. A separate measure of new orders slipped to 52.3 from 53.0, signaling softer demand.

Prices, however, continued to rise. A key input cost index for manufacturers jumped to 70.0—its highest level since July 2022—mainly due to tariffs. S&P Global reported that nearly two-thirds of manufacturers facing higher costs attributed them to import duties, while over half said they passed those increases on to consumers. As a result, the index tracking prices charged by manufacturers surged to 64.5 from 59.7 in May.

"With tariff-induced price hikes already set to squeeze household spending power, higher gasoline prices would intensify the strain on consumer pockets, risking a more pronounced slowdown in the economy," said James Knightley, chief international economist at ING.

The strain is showing up in housing. A report from the National Association of Realtors showed that existing home sales rose 0.8 percent in May to 4.03 million units, which is still the slowest May pace since 2009. Sales were down 0.7 percent year-on-year, and the 1.3 percent rise in prices was the smallest since 2023. Inventory climbed to its highest level in nearly nine years, indicating softening demand as elevated mortgage rates continue to deter buyers.

"Softer housing sector activity should be an early sign that underlying demand is weakening this year," said Veronica Clark, economist at Citigroup.

The Fed, which last week held interest rates steady from 4.25 percent to 4.50 percent, is under increasing pressure. Vice Chair Michelle Bowman said rate cuts could resume as early as July, even as Fed Chair Jerome Powell warned of "meaningful" inflation ahead.

Geopolitical tensions are adding to inflation fears. After U.S. airstrikes on Iran's nuclear facilities, Goldman Sachs warned that oil prices could spike to US$110 per barrel if shipping through the Strait of Hormuz were disrupted. Oil briefly hit a five-month high on Monday before retreating.

Despite this backdrop, Wall Street rallied this week on hopes of Fed easing. The dollar slipped, and Treasury yields fell.

While S&P's survey showed a modest pickup in employment—mainly driven by manufacturing—some economists remain cautious. Samuel Tombs of Pantheon Macroeconomics noted that unemployment claims are up and questioned the PMI's reliability as a predictor of actual job growth.

"The employment index has been a poor guide to payroll growth lately," he said. "Other surveys all suggest that businesses are slowing employment growth."

As tariff-related costs filter through and uncertainty in the Middle East persists, economists say the risks of slow growth combined with rising prices are growing, bringing the word "stagflation" back into focus.