Inflation in the United States remained unchanged in July, as a key metric of underlying inflation escalated to its highest level in five months, driven by tariffs that have increased the cost of imported goods.
The Labor Department reported that consumer prices rose 2.7% year-over-year in July, a figure consistent with June’s rates and reflecting an increase from April’s post-pandemic low of 2.3%.
Core prices, which exclude the more volatile food and energy categories, saw an uptick to 3.1%, up from 2.9% the previous month.
Both of these inflationary measures continue to surpass the Federal Reserve’s target of 2%.
The latest inflation figures indicate that slower rent increases and decreasing gas prices are mitigating the impacts of President Donald Trump’s extensive tariffs, which were enacted in April.
Many businesses have opted to absorb some of the tariff costs, leading to a more favorable outlook for consumers in specific sectors.
However, persistent inflation puts the Federal Reserve in a challenging position as the pace of hiring decelerated markedly last spring following the imposition of tariffs.
Recent job reports showed a slowdown in hiring, which has heightened market expectations regarding a potential interest rate cut by the central bank.
Federal Reserve Chair Jerome Powell has cautioned that continuously high inflation may prompt the Fed to remain inactive, a stance that has frustrated President Trump, who has mobilized efforts to undermine the traditional independence of the central bank while advocating for lower borrowing rates.
Gas prices fell by 2.2% from June to July and showed a significant decline of 9.5% compared to a year earlier, according to the government’s report.
Grocery prices saw a slight decrease of 0.1% last month, yet they are still 2.2% higher on a year-over-year basis.
In contrast, restaurant meals have continued to rise in cost, increasing by 0.3% in July and 3.9% over the past year.
Tariffs have noticeably elevated the prices of certain imported goods; for instance, shoe prices increased by 1.4% from June to July, although they remain just 0.9% more expensive compared to the previous year.
Furniture prices surged by 0.9% in July and are now 3.2% higher than a year ago.
Clothing prices experienced a modest rise of 0.1% in July, following a larger uptick in June, but they remain slightly cheaper than last year.
The data comes at a tumultuous time for the Labor Department’s Bureau of Labor Statistics (BLS), which collects and disseminates the inflation data.
President Trump replaced Erika McEntarfer, the previous head of BLS, after the Aug. 1 jobs report revealed substantially lower hiring figures for May and June than what had initially been reported.
On social media, the president announced the appointment of E.J. Antoni, an economist with the conservative Heritage Foundation known for his critical views of the jobs report, as McEntarfer’s replacement.
Trump stated, “E.J. will ensure that the numbers released are HONEST and ACCURATE.”
This reshuffling at the BLS is coupled with a government-wide hiring freeze that has resulted in reduced data collection for inflation reports.
UBS economist Alan Detmeister estimates that the BLS is now gathering approximately 18% fewer price quotes for each inflation report compared to earlier months, suggesting that the findings could result in increased volatility, though they should remain reliable over time.
As the trade war continues, Americans may soon bear the brunt of further costs associated with tariffs, as President Trump finalizes tariff policies.
Economists suggest that businesses are likely to pass these increased costs onto consumers once they gain clarity on the price changes brought about by tariffs.
While President Trump maintains that overseas manufacturers will counteract tariff impacts by reducing their prices, pre-tariff import prices have not shown significant drops since the tariffs were instituted.
Economists at Goldman Sachs estimate that foreign manufacturers absorbed only 14% of the tariff burden through June, while consumers shouldered about 22% and U.S. companies 64%.
Based on historical trends, they forecast that by this fall, consumers will bear 67% of the costs, with foreign exporters covering 25% and U.S. companies handling just 8%.
A number of major U.S. companies have begun raising prices in response to the tariffs.
Apparel brands such as Ralph Lauren and Under Armour, along with Warby Parker, an eyewear company, have announced price increases due to tariff-related impacts.
Consumer products giant Procter & Gamble, known for brands like Crest and Tide, revealed plans to raise prices on around 25% of its goods by mid-single-digit percentages due to tariff costs.
Similarly, e.l.f. Beauty, which produces a majority of its products in China, announced a price increase of one dollar on its entire range of products effective Aug. 1, marking the third price hike in the company’s 21-year history.
CEO Tarang Amin stated on an earnings call that the company would lead with these price adjustments to gauge how many competitors might follow suit.
Matt Pavich, senior director of strategy and innovation at Revionics, noted that many companies are being selective about their price increases to address the tariff issues rather than implementing widespread price hikes.
He remarked, “Up until now we haven’t seen a massive hit to consumers in retail prices; now, they are going up, and we’ve seen that.”
image source from：pbs
