A key measure of underlying inflation rose in July as businesses grappled with President Trump’s tariffs, although the overall increase was likely not significant enough to deter the Federal Reserve from lowering interest rates at its next meeting.
The Consumer Price Index stayed steady at 2.7 percent compared to the same time last year. On a monthly basis, prices rose 0.2 percent from June. But an important gauge tracking consumer prices that strips out volatile food and energy prices accelerated more rapidly.
“Core” C.P.I., which is closely watched by the central bank, jumped 0.3 percent over the course of the month, or 3.1 percent on a year-over-year basis. That is one of the largest monthly increases so far this year and represents the fastest annual pace in five months. In June, core inflation rose 0.2 percent from the previous month, or 2.9 percent from July 2024.
The July data, which was released by the Bureau of Labor Statistics, provides a clear sign that businesses are being affected by tariffs. Some have begun to more readily pass along those related costs to their customers after a prolonged period in which price gains were muted. Still, inflation data came in more or less as expected, suggesting the central bank can move ahead with plans to soon restart interest rate cuts that it put on hold in December.
“The economy is weaker because of tariffs,” said Stephen Stanley, chief U.S. economist at Santander. “Businesses are being very cautious. They’re not investing and they’re not hiring,” he added, noting that consumers were also pulling back in the face of higher prices.
U.S. companies that import products have largely been able to hold off on raising prices despite a universal 10 percent tariff that has been in place on all imports since April, along with higher levies on steel, aluminum and products from China and Canada. Mr. Trump’s more punishing tariffs on individual countries went into effect on Aug. 7 so will not be reflected in the July data.
Businesses have managed to avoid passing along price increases because of a strategy earlier in the year to stockpile goods that were likely to be subject to Mr. Trump’s levies. Many companies have also sought to absorb the costs themselves in order to avoid driving away customers, some of whom are increasingly under financial strain.
But the July data showed more businesses reaching a tipping point, left with little option but to raise prices following June’s notable uptick. Services inflation accelerated in July, posting the largest monthly gain since the start of the year after energy costs were stripped out.
Mr. Stanley warned that Mr. Trump’s tariffs are high enough that prices across most categories will have to go up. He said for companies, “it’s just a matter of when and how do I do it?”
The biggest impact has so far been concentrated in categories such as furniture, appliances and other household wares, as well as recreation goods and footwear.
In July, the broader household furnishings index rose 0.7 percent in June, following a 1 percent increase in June. Compared to the same time last year, those prices are up 2.4 percent. Recreation-related prices rose 0.4 percent. Some of the larger gains in July came in apparel and footwear, categories that are exposed to tariffs on countries around the world, including India, Vietnam and China. Prices on infants and toddlers apparel were up 3.3 percent in July. Footwear was up 1.4 percent.
Airfares rose sharply after several months of declines, increasing 4 percent in July. Hotel-related expenses continued to be muted, however.
New and used vehicle price increases have stayed relatively subdued, as carmakers have shielded their customers from Mr. Trump’s duties rather than forcing them to bear the brunt of the higher costs. That changed in July, with used car and truck prices rising 0.5 percent. New vehicle prices, however, were flat for the month.
A sharp drop in energy prices helped to offset rising costs elsewhere, which kept the headline inflation figure steady. The overall energy index dropped 1.1 percent, with gasoline prices down 2.2 percent.
Americans have become choosier about how they spend as hiring across the country has slowed in recent months, which Nancy Lazar, chief global economist at Piper Sandler, said could help to blunt how significantly inflation will rise over time.
Consumer incomes, once adjusted for inflation, have stalled, she said. “The consumer doesn’t have the wherewithal to go in and net pay higher prices.”
July’s jobs report showed just 73,000 jobs added for the month, and gains registered in May and June were revised down by an unusually large total of 258,000 positions. Companies have yet to lay off workers in droves, but economists worry that they will be forced to cut back on costs as tariffs continue to eat into their margins.
Tuesday’s data is important for the Fed, which is facing a challenging economic situation in which prices are rising while the labor market is weakening. It is a difficult backdrop given the Fed’s duty to keep inflation low and stable while also ensuring that unemployment does not rise too much. Officials at the central bank have kept interest rates steady since the start of the year as they have sought more clarity on how Mr. Trump’s policies, including tariffs, would impact the economy.
That approach has attracted significant criticism from the president, who has taken to directly insulting Jerome H. Powell, the chair of the central bank, as well as the powerful Board of Governors that he heads. On Tuesday, Mr. Trump again attacked Mr. Powell, calling him a “loser” and accusing him of causing “incalculable” economic damage.
The president also threatened to allow what he described as a “major” lawsuit against Mr. Powell to proceed over costly renovations at the Fed’s headquarters in Washington. The project has become one of the primary targets of Mr. Trump’s anger over the Fed’s reluctance to cut interest rates this year.
The president last week announced that he would install a temporary governor to join the board, which votes on interest rates at every policy meeting; the next one is in September. A vacancy unexpectedly opened up at the start of the month when Adriana Kugler, a governor, announced that she was leaving before her term was set to expire at the end of January. The president tapped a longstanding critic of the Fed, Stephen Miran, who most recently served as chair of Mr. Trump’s Council of Economic Advisers.
On Tuesday, Mr. Miran said that the inflation report showed that there is “no evidence whatsoever” that tariffs have caused a spike in prices. “It just hasn’t panned out,” he said.
Mr. Miran, who still must be confirmed by the Senate, will join a group of Fed officials who have started to splinter over the right time to restart interest rate cuts that were paused in December. Two policymakers, previously appointed by Mr. Trump, have already called for the Fed to cut interest rates.
More policymakers appear to be joining that camp following the most recent data that showed far less monthly jobs growth since the start of the summer than initially expected. Earlier this summer, Mr. Powell conceded that were it not for tariffs, the Fed likely could have reduced borrowing costs already.
July’s inflation report is also the first big economic data release from the Bureau of Labor Statistics since Mr. Trump fired its head after the weaker-than-expected jobs report. The president claimed without evidence that Erika McEntarfer, who had run the agency since 2024, had “rigged” the federal hiring data to harm him politically. Economists decried that move, warning that any attempt to undermine what has always been considered reliable, independently produced statistics from the government agency would be economically and financially damaging.
On Monday, the president announced his decision to nominate E.J. Antoni, an economist at the conservative Heritage Foundation who has criticized the B.L.S. in the past, to lead the agency.
Tony Romm contributed reporting.
Colby Smith covers the Federal Reserve and the U.S. economy for The Times.
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