CPI report reveals inflation held steady in July as tariffs threatened wider impact

USA Today

4 days ago

Inflation held steady in July as President Donald Trump's sweeping import tariffs took a widening toll on U.S. consumer prices.
An underlying inflation measure accelerated more than expected.
Prices overall increased 2.7% from a year earlier, similar to June, according to the Labor Department's consumer price index, a measure of average changes in goods and services costs.
On a monthly basis, costs increased 0.2% after rising 0.3% the previous month.
What is the meaning of core inflation?
But core inflation, which excludes volatile food and energy items and is watched closely by the Federal Reserve because it better reflects longer-term trends, increased 0.3% after rising 0.2% in June. That nudged the annual increase from 2.9% to 3.1%.
Do tariffs increase inflation?
Inflation has been pulled by conflicting forces this year. On the one hand, services prices that soared following the COVID-19 pandemic have climbed more modestly or drifted lower.
Rent hikes, for example, have softened. Wage increases have slowed as pandemic-related labor shortages eased. And Americans grappling with higher inflation have reined in their spending on travel and recreational activities, lowering airfares and hotel rates.
Absent the tariffs, yearly inflation likely would already be at the Fed's 2% goal, economists have said.
But the tariffs, which had minimal effects on consumer prices through the first five months of 2025, began delivering a bigger blow in June and forecasters expect a growing impact on the cost of goods over the next few months.
Duties already in effect for weeks or months include a 30% tax on Chinese imports, 50% on steel and aluminum and 25% on foreign cars. The average U.S. tariff rate has jumped from less than 3% in January to 15% to 20%.
Retailers and manufacturers have cushioned the hit to consumers by stocking up on inventory before the fees took effect and absorbing some cost increases themselves, among other strategies. But economists say those tactics largely have played out.
Meanwhile, the White House has reached deals with trading partners such as Japan, South Korea, Vietnam and UK that set tariffs at 10% to 20%. On Aug. 7, Trump imposed levies of 10% to 50% on dozens of countries that didn't reach agreements with the U.S. In other words, the most far-reaching charges are looming.
By year's end, Barclays expects overall inflation to reach 3.4% while the core reading hits 3.7%.