Consumer prices increase in July amid tariff driven economic uncertainty
The consumer price index report (CPI) rose 2.7 percent over this time last year and follows a 2.7 percent increase in June, according to the Department of Labor report released on Tuesday. On a monthly basis, prices increased by 0.2 percent in July compared to 0.3 percent in June.
The data beat analyst expectations. Economists surveyed by Dow Jones expected a 2.8 percent increase on an annual basis.
The cost of energy dropped by 1.1 percent over the last 12 months. Petrol, in particular, led the decline with a 2.3 percent decrease for the year. Grocery prices fell by 0.1 percent, but the cost of eating out of the house increased by 0.3 percent. Shelter costs increased by 0.2 percent.
The cost of medical care services rose by 4.3 percent. Airline prices increased by 4 percent compared with this time last year.
Increases and decreases
'Today's CPI report revealed that inflation beat market expectations once again and remains stable, underscoring President [Donald] Trump's commitment to lower costs for American families and businesses,' White House press secretary Karoline Leavitt said in a statement to reporters.
But a deeper look at the data tells a different story. Prices increased in areas heavily affected by tariffs, while they decreased in areas that are not affected by tariffs.
'We really are seeing a divergence in the inflation data right now between import-sensitive sectors and those that do not rely on imports,' Daniel Hornung, senior fellow at MIT and former deputy director of the National Economic Council, told Al Jazeera.
Compared with this time last year, hotel prices fell by 1.3 percent and car rental prices tumbled by 2.9 percent as Americans have pulled back on discretionary travel spending. But products like tools and hardware prices ticked up 1.6 percent, car parts rose by 0.9 percent, and footwear surged 1.4 percent, all items that are imported and have to bear the levies.
The latest data comes after Trump fired Erika McEntarfer, the head of the Bureau of Labor Statistics, amid recently revised jobs data showing far fewer jobs were created than originally reported.
The president intends to replace her with EJ Antoni, an economist with the Heritage Foundation. He was a contributor to Project 2025, a far-right wishlist the conservative think tank put together.
While on the campaign trail, Trump distanced himself from Project 2025, but he has since appointed authors of many of its chapters to several key roles in the federal government, including Brenden Carr, who now leads the Federal Communications Commission and Russell Vought to lead the Office of Management and Budget.
A look ahead
Hornung believes that the latest data shows the effect of tariffs and is expected to rise as rates increase on trading partners.
'The way that probably shows up in the data is not literally over one month, but a relatively steady increase over the course of several months,' Hornung said.
'It might last even longer because of the way that the tariffs are being put in place, where we're seeing in April one set of tariff announcements that take a few months to work their way through into consumer prices. Then again, in August, another set of increased incremental tariff rates that will work their way through the system over the course of the fall.'
In the private sector, some of the US's largest businesses have announced a need to raise prices because of tariffs, including big box retailer Walmart, and Procter and Gamble, the world's largest consumer goods maker.
Increased inflation and slowing job growth could lead to lower interest rates in September when the Federal Reserve is next set to meet, according to Hornung.
On Wall Street, the markets are responding positively to the report, which showed the inflation rate increasing slightly less than expected. The Dow Jones Industrial Average is up 1.1 percent. The S&P 500 is trending upwards at 0.8 percent and the Nasdaq is also up 0.8 percent.
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