WASHINGTON (AP) — US inflation was unchanged in July as rising prices for some imported goods were balanced by falling gas and grocery prices, leaving overall prices modestly higher than a year ago.
Consumer prices rose 2.7 percent 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 percent in April. Excluding the volatile food and energy categories, core prices rose 3.1 percent, up from 2.9 percent in June. Both figures are above the Federal Reserve’s 2 percent target.
The new numbers suggest that slowing rent increases and cheaper gas are offsetting some impacts of President Donald Trump’s sweeping tariffs. Many businesses are also likely still absorbing much of the cost of the duties. Tuesday’s figures probably reflect some impact from the 10 percent universal tariff Trump imposed in April, as well as higher duties on countries such as China and Canada.
Brian Bethune, an economist at Boston College, said that overall US tariffs — calculated as the amount of duties paid by US companies divided by overall imports — has reached 10 percent, the highest in decades, and will likely keep rising for months.
“Those cost increases will be passed on to the consumer in some way, shape, or form,” Bethune said. Some companies could return to “shrinkflation,” he added, in which they reduce the package size of a good while keeping the price the same.
And companies that are absorbing tariff costs, which would cut into their profit margins, are less likely to hire new employees, he said.
The Federal Reserve may now be 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 at its next meeting in September, and some Fed officials have raised concerns about the health of the job market. A rate cut by the Fed often, but not always, lowers borrowing costs for mortgages, car loans, and business loans.
Economists are divided over how Fed officials will read the data in the coming months. Some argued that the worsening jobs picture will outweigh lingering inflation concerns and lead the Fed to cut at its next meeting in September. Yet some say that with core inflation notably above 2 percent and rising, the Fed will postpone that decision.
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.
On Tuesday, Trump attacked Powell again for not cutting rates and suggested he would allow a lawsuit against the Fed to proceed because of the rising costs of its extensive building renovation. It wasn’t clear what lawsuit he was referring to.
On a monthly basis, prices rose 0.2 percent in July, down from 0.3 percent the previous month, while core prices ticked up 0.3 percent, a bit faster than the 0.2 percent in June.
Gas prices fell 2.2 percent from June to July and have plunged 9.5 percent from a year earlier, the government’s report said. Grocery prices slipped 0.1 percent last month, though they are still 2.2 percent higher than a year ago.
Tariffs appeared to raise the cost of some imported items: Shoe prices jumped 1.4 percent from June to July, though they are still just 0.9 percent more expensive than a year ago. The cost of furniture leapt 0.9 percent in July and is 3.2 percent higher than a year earlier.
Coffee costs nearly 15 percent more than a year earlier, mostly because of troubled harvests overseas, though steep duties on imports from Brazil could push those prices higher in the coming months. Nearly all US coffee is imported.
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.
Adding to the turmoil at BLS is a government hiring freeze that has forced it to cut back on the data it collects for each inflation report, the agency has said. UBS economist Alan Detmeister estimates that BLS is now collecting about 18 percent fewer price quotes for the inflation report than it did earlier this year. He thinks the report will produce more volatile results, though averaged out over time, still reliable.
Smaller companies are trying to avoid raising prices and some have turned to novel ways of raising funds.
