Editor
The consumer price index (CPI) revealed a less alarming rise in July, offering a small sigh of relief to markets that were anxious about President Donald Trump’s tariffs potentially driving prices up. The data, which came out on Tuesday from the Bureau of Labor Statistics, gave a glimmer of hope that the Federal Reserve might still have the chance to lower interest rates next month.
The CPI, an important measure of inflation, went up by 0.2% for the month and 2.7% over the year. While this marks an increase, it was slightly lower than the 2.8% annual growth that analysts had anticipated. When we look at core inflation, which excludes the more unpredictable food and energy prices, there was a 0.3% rise for the month and a 3.1% increase year-over-year—the biggest annual jump since February. Although the monthly core rate showed some energy, the overall situation wasn’t as concerning as many had feared, especially considering the ongoing trade tensions.
Shelter and Tariffs: A Closer Look at the Drivers
Taking a closer look at the numbers, a big chunk of the monthly increase in the index can be linked to rising shelter costs, which went up by 0.2%. Transportation and medical care services also played a role in this uptick, each seeing a significant 0.8% rise. Interestingly, energy costs actually dropped by 1.1% for the month, which is a nice relief.
But the real buzz everyone is talking about is the effect of the tariffs. Are we finally seeing them reflected in the prices we pay? The answer, at least for now, seems to be a complicated “yes, but.”
“The tariffs are definitely showing up in the numbers,” said Sarah Chen, a senior economist at Meridian Capital. “You can see it in household furnishings and some other imported goods. But they aren’t causing a massive spike. Not yet, anyway.”
That feeling resonates with what many are noticing. While household furnishings and supplies experienced a 0.7% increase, categories like apparel only rose by a tiny 0.1%. Even some imported food items, which are usually sensitive to these trade changes, stayed flat. This hints that businesses might be absorbing some of the costs, or that the full effects are still making their way through the supply chain.
The Politics and the Data: A Bureau Under Fire
The CPI report comes at a particularly tense time for the Bureau of Labor Statistics. Recently, President Trump took aim at the bureau, firing its commissioner after a surprisingly lackluster jobs report. He has since put forward E.J. Antoni, a vocal critic of the agency, as his replacement.
This political turmoil has overshadowed the bureau’s efforts, which are already struggling with budget cuts and a shortage of staff. This situation raises concerns about the reliability of the data, a challenge that any new commissioner will need to tackle directly. For now, though, the Federal Reserve has to rely on this data, and what they see could pave the way for their next steps.
“Inflation is climbing, but it hasn’t surged as much as some had feared,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management. “In the short term, markets are likely to welcome these figures because they should allow the Fed to concentrate on labor-market weaknesses and keep a rate cut on the table for September.”
The Fed’s Next Move: A September Cut Looms Large
The market reacted quickly. After the report came out, stocks surged, and the chances of a rate cut in September skyrocketed in the futures market. According to the CME Group’s FedWatch tool, traders are now estimating a two-thirds likelihood of another rate reduction in October, a significant jump from just a day earlier.
While the Consumer Price Index (CPI) isn’t the Federal Reserve’s go-to measure for inflation—that title goes to the Commerce Department’s personal consumption expenditures index—it still plays a vital role in the overall economic picture the central bank is trying to understand.
Now, the big question is whether this moderate inflation report is just a brief pause or the start of a new trend. Most economists think that tariffs will lead to a one-time price hike instead of a prolonged inflationary spiral. However, the wide range of products affected by these trade measures could mean a longer and more complex road ahead for the economy. For now, the latest figures provide a much-needed breather, but it’s a delicate situation. The Fed’s upcoming decision will reveal a lot about how seriously they’re navigating this tightrope.
