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The year-over-year inflation rate held at 2.7% in July, below the expected 2.8% but still elevated.
The consumer price index increased 0.2% over the month, matching the forecast but below June’s 0.3% rise.
Core CPI, which excludes volatile food and energy prices, rose 3.1% over the year in July, above the 3% forecast and June’s 2.9%. The core rate rose as expected over the month to 0.3%, above June’s 0.2% increase.
New tariffs on copper products and dozens of countries went into effect in early August, adding to the ones already applied during Trump’s second presidency so far. On Monday, Trump extended the pause on higher China tariffs until November. It could take a while to see how the newer tariffs impact inflation.
Jed Kolko, senior fellow at the Peterson Institute for International Economics, said on X that any tariff impacts are likely to be seen in core goods prices, noting those were “up 0.2% in July, same as June. Rising faster than in March/April/May but still at modest pace.”
The shelter index, which was the biggest contributor to CPI’s monthly rise, increased 0.2% again. The year-over-year rate continued to cool, increasing 3.7% from a year ago in July.
The food index was flat over the month after rising 0.3% the previous two months. It rose 2.9% over the year, less than the 3% rate in June.
The gas index dropped 9.5% over the year in July, after falling 8.3% over the year in June. It fell 2.2% over the month in July.
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“Higher tariffs have begun to show through more clearly to prices of some goods, but their overall effects on economic activity and inflation remain to be seen,” Fed chair Jerome Powell said in a July 30 press conference after the Fed decided to hold interest rates steady for the fifth consecutive time.
The next scheduled Federal Open Market Committee meeting, where members will make a rate decision, is in September. That could be when the US sees the first rate cut this year, following the weaker jobs report earlier this month, which included much cooler job gains in May and June than previously reported.
The CME FedWatch tool, which estimates probabilities of future Fed rates based on market moves, showed a 90% likelihood of a cut in September after the new inflation report, up from the roughly 80% likelihood before the report.
“Although core annual inflation is back to its highest level since February, today’s CPI print is not hot enough to derail the Fed from cutting rates in September,” said Seema Shah, the chief global strategist at Principal Asset Management. “There is some sign of tariff pass through to consumer prices but, at this stage, it is not significant enough to ring alarm bells.”
Consumers haven’t taken the brunt of tariffs’ impacts, at least not yet. A Goldman Sachs report on Sunday said US consumers have absorbed less than a quarter of tariff costs through June but think it will jump to 67% by October, assuming newer tariffs have a similar impact to previous ones. Businesses and foreign exporters account for the remaining incidence of the tariffs.
Diane Swonk, chief economist at KPMG US, told PBS News Hour that “the tariffs are so large that they also squeeze profit margins and that means cost-cutting or layoffs.” So far, US layoffs have remained at their low rate.
“What we’re worried about is a sort of stagflationary kind of nature of these tariffs because they’re so large and they’re just unable to be completely absorbed by either firms themselves or completely passed on to consumers 100 percent,” Swonk said.
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