US consumer prices rose 0.2% in July and 2.7% over the past year, coming in slightly below the expected tariff-induced spike.
Core inflation hit 3.1% — its highest level since February — as shelter and service costs edged higher but tariff impacts remained modest.
The figures suggest that slowing rent increases and cheaper gas are offsetting some impacts of US President Donald Trump’s sweeping tariffs.
Still, stubbornly high inflation puts the Federal Reserve in a difficult spot. Hiring slowed sharply in the spring, after Trump announced tariffs in April.
Fed Chair Jerome Powell has warned that worsening inflation could pause rate cuts — a stance that has enraged Trump, who has defied traditional norms of central bank independence and demanded that the Federal Reserve lower borrowing costs.
Gas prices fell 2.2% from June to July and have plunged 9.5% from a year earlier, the government’s report said. Grocery prices slipped 0.1% last month, though they are still 2.2% higher than a year ago. Restaurant meals continued to get more expensive, however, rising 0.3% in July and 3.9% from a year earlier.
Tariffs appeared to raise the cost of some imported items. Shoe prices jumped 1.4% from June to July, though they are still just 0.9% more expensive than a year ago. The cost of furniture leapt 0.9% in July and is 3.2% higher than a year earlier. Clothing prices ticked up 0.1% in July, after a larger rise in June, though they are still slightly cheaper than a year ago.
Trouble for the government’s chief inflation tracker
Tuesday’s data arrives at a highly-charged moment for the Labour Department’s Bureau of Labour Statistics, which collects and publishes the inflation data.
Trump fired Erika McEntarfer, then the head of BLS, after the 1 August jobs report also showed sharply lower hiring for May and June than had previously been reported.
The president posted on social media Monday that he has picked E.J. Antoni, an economist at the conservative Heritage Foundation and a frequent critic of the jobs report, to replace McEntarfer.
“E.J. will ensure that the numbers released are honest and accurate,” Trump said on Truth Social.
Adding to the BLS’s turmoil is a government-wide hiring freeze that has forced it to cut back on the amount of data it collects for each inflation report, the agency has said.
UBS economist Alan Detmeister estimates that BLS is now collecting about 18% fewer price quotes for the inflation report than it did a few months ago. He thinks the report will produce more volatile results, though averaged out over time, still reliable.
Prices likely to rise later in the year as tariffs set in
Americans are likely to absorb more trade-war costs in the coming months as Trump begins to finalise tariffs. Once businesses know what they will be paying, they are more likely to pass those costs to customers, economists say.
Trump has insisted that overseas manufacturers will pay the tariffs by reducing their prices to offset the duties. Yet the pre-tariff prices of imports haven’t fallen much since the levies were put in place.
Economists at Goldman Sachs estimate that foreign manufacturers have absorbed just 14% of the duties through June, while 22% has been paid by consumers and 64% by US companies.
Based on previous patterns, however — such as Trump’s 2018 duties on washing machines — the economists expect that by this fall consumers will bear 67% of the burden, while foreign exporters pay 25% and US companies handle just 8%.
Many large US companies are raising prices in response to the tariffs, including apparel makers Ralph Lauren and Under Armour, and eyewear company Warby Parker.
Consumer products giant Procter & Gamble, maker of Crest toothpaste, Tide detergent and Charmin toilet paper, said late last month that it would lift prices on about a quarter of its products by mid-single-digit percentages.
And cosmetics maker e.l.f. Beauty, which makes a majority of its products in China, said on Wednesday that it had raised prices by a dollar on its entire product assortment as of 1 August because of tariff costs, the third price hike in its 21-year history.
“We tend to lead and then we will see how many more kind of follow us,” CEO Tarang Amin said on an earnings call Wednesday.
Matt Pavich, senior director of strategy and innovation at Revionics, a company that provides AI tools to large retailers to help them evaluate pricing decisions, says many companies are raising prices selectively to offset tariffs, rather than across the board.
“Up until now we haven’t seen a massive hit to consumers in retail prices,” Pavich said. “Now, they are going up, we’ve seen that.”
