The US Bureau of Labor Statistics released the July Consumer Price Index report on Tuesday, showing inflation steady at 2.7% year-over-year, matching June’s rate and just a touch below economists’ 2.8% forecast.
This is the third month in a row with inflation under 3%, showing that price pressures are still there but staying somewhat controlled.
Month to month, prices went up 0.2%, slowing down from June’s 0.3% increase, which had been the biggest monthly jump since January.
Most of July’s increase came from shelter costs, which ticked up by 0.2%, reflecting steady demand in the housing market.
Food prices stayed flat overall, while energy prices dropped by 1.1%. Gasoline, which makes up a big part of energy costs, fell 2.2%, offering some relief to consumers.
Core inflation picks up pace
Core inflation, which strips out the more volatile food and energy sectors, showed signs of picking up pace.
In July, core CPI rose 0.3%, marking its biggest monthly gain in six months and reversing June’s 0.2% increase.
On an annual basis, core inflation climbed to 3.1%, up from 2.9% the previous month and slightly above the market’s 3% expectation.
This rise was driven by higher prices in areas like medical care, airline fares, recreation, household furnishings, and used vehicles.
Meanwhile, some categories, such as lodging away from home and communications, actually saw price declines.
The report also pointed to the growing influence of tariffs on inflation, a hot topic given recent political debates.
The latest tariff hikes, effective from August 7, target goods from more than 60 countries and the European Union, and are beginning to push up prices on imported items including apparel, home furnishings, and appliances.
Economists from UBS and other firms note that these tariff-driven price increases could be a one-off shock or could exert ongoing inflationary pressure well into next year, leaving some uncertainty over how tariffs will shape inflation moving forward.
Fed keeps a close eye
Energy prices have eased about 1.6% over the past year, mostly thanks to lower gas prices. But not everything’s cheaper; utility bills tell a different story, with electricity up 5.5% and natural gas jumping nearly 14%.
Food costs are up 2.9%, with dining out getting pricier faster than groceries.
The Fed watches these inflation numbers closely since hitting its 2% target is a big goal.
Inflation is still running above that level, but because things have been fairly steady and the signals from the economy are mixed, the Fed is taking a careful approach.
Ahead of the report, people were expecting about a 0.2% rise for the month and a 2.8% increase over the year, so the slightly cooler numbers give everyone something to think about.
Most market watchers think the Fed will hold rates steady for now, but with recent weak jobs reports and downward payroll revisions, interest rate cuts could be on the table soon.
That said, the bump in core inflation, driven by tariffs and rising costs in services and durable goods, still poses a tricky challenge.
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