US inflation unchanged last month, though core prices accelerated

Consumer prices rose 2.7% in July from a year earlier, the Labor Department said, the same as the previous month.

U.S. inflation was unchanged in July while a measure of underlying inflation rose to its highest level in five months as tariffs push the price of imported goods higher while gas and grocery prices cooled.

Consumer prices rose 2.7% in July from a year earlier, the Labor Department said Tuesday, the same as the previous month and up from a post-pandemic low of 2.3% in April. Excluding the volatile food and energy categories, core prices rose 3.1%, up from 2.9% in June. Both figures are above the Federal Reserve’s 2% target.

The figures suggest that slowing rent increases and cheaper gas are offsetting some impacts of President Donald Trump’s sweeping tariffs. Many businesses are also absorbing some of the cost of the duties. Tuesday’s figures likely include some impact from the 10% universal tariff Trump imposed in April, as well as higher duties on countries such as China and Canada.

Still, stubbornly high inflation puts the Federal Reserve in a difficult spot: Hiring slowed sharply in the spring, after Trump announced tariffs in April. The stalling out of job gains has boosted financial market expectations for an interest rate cut by the central bank.

Chair Jerome Powell has warned that worsening inflation could keep the Fed on the sidelines — a stance that has enraged Trump, who has defied traditional norms of central bank independence and demanded 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.

Tuesday’s data arrives at a highly-charged moment for the Labor Department’s Bureau of Labor Statistics, which collects and publishes the inflation data. Trump fired Erika McEntarfer, then the head of BLS, after the Aug. 1 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.

Americans are likely to absorb more trade-war costs in the coming months as Trump begins to finalize 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 U.S. 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 U.S. companies handle just 8%.

Many large U.S. 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 Aug. 1 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.”