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U.S. consumer prices were unchanged in July from the previous month, as falling gas and grocery costs offset tariff-driven increases for some imports, the Labor Department reported Tuesday.
The Consumer Price Index rose 2.7% in July from a year earlier, matching June’s pace and up from a post-pandemic low of 2.3% in April. Core inflation — which strips out volatile food and energy prices — climbed 3.1% from a year ago, up from 2.9% in June. Both remain above the Federal Reserve’s 2% target.
On a monthly basis, headline prices rose 0.2%, down from 0.3% in June, while core prices increased 0.3%, a notch faster than the previous month.
Tariffs Start to Bite
Economists say the figures reflect the early effects of President Donald Trump’s sweeping tariffs, including a 10% universal duty on imports imposed in April and steeper levies on goods from China, Canada, and other countries.
“Those cost increases will be passed on to the consumer in some way, shape, or form,” said Brian Bethune, an economist at Boston College, noting that overall tariff levels have hit their highest point in decades. Businesses absorbing the duties may be less willing to hire, he added.
Gas prices dropped 2.2% from June and are down 9.5% from a year ago. Grocery prices edged 0.1% lower in July but remain 2.2% higher than a year earlier. By contrast, shoe prices jumped 1.4% in the month, furniture rose 0.9%, and coffee costs surged nearly 15% year-over-year amid supply troubles and new duties on imports from Brazil.
Fed Caught Between Inflation and Jobs
The inflation report lands as the Federal Reserve weighs whether to cut interest rates at its September meeting. Hiring slowed sharply in the spring after Trump announced his tariff plan, and market expectations for a rate cut have grown.
Some Fed officials worry about the health of the labor market, but others point to the rise in core inflation as a reason to delay easing. Chair Jerome Powell has warned that persistent price pressures could keep the Fed on the sidelines — a position that has drawn Trump’s ire. On Tuesday, Trump attacked Powell again for not cutting rates and suggested he would permit a lawsuit against the central bank over building renovation costs, without clarifying the case he meant.
Political and Operational Turmoil at BLS
The report also comes amid leadership upheaval at the Bureau of Labor Statistics (BLS), which produces the inflation data. Trump fired Commissioner Erika McEntarfer on Aug. 1 after a jobs report showed sharply lower hiring for May and June. On Monday, he nominated E.J. Antoni, a Heritage Foundation economist and longtime critic of the jobs report, to replace her.
Complicating matters, a government hiring freeze has forced BLS to cut back on price data collection. UBS economist Alan Detmeister estimates the agency is gathering 18% fewer price quotes than earlier this year, potentially making monthly reports more volatile.
Consumers and Companies Adjust
Some businesses are taking unusual steps to avoid raising prices. Clothing maker Princess Awesome has added a “tip jar” on its website to help offset tariff costs rather than boost prices outright. But major brands including Ralph Lauren, Under Armour, Walmart, and Procter & Gamble have already announced price hikes, with more coming in August.
Goldman Sachs economists estimate that, so far, U.S. consumers have paid about 22% of the tariffs’ costs, while domestic companies have borne 64% and foreign manufacturers 14%. By fall, they expect consumers to shoulder two-thirds of the burden.
