U.S. consumer prices saw a modest increase in July, with the Consumer Price Index (CPI) rising 0.2%, matching economists’ expectations. However, underlying inflation—driven by rising costs in services like airline fares, healthcare, and dental care—posted its largest gain in six months. The report from the Labor Department’s Bureau of Labor Statistics (BLS) also indicated that the disinflationary trend in services may be stalling, raising questions about future Federal Reserve policy moves.
While the overall CPI increase was moderate, certain tariff-sensitive goods, such as household furniture, saw price hikes, though economists noted that the full impact of President Trump’s import duties has yet to fully materialize. The mixed data left analysts divided on whether the Fed will proceed with an expected interest rate cut in September. Some argued that persistent services inflation could delay further monetary easing, while others pointed to weakening labor market conditions as justification for a rate reduction.
The inflation report comes amid growing concerns over the reliability of government economic data following budget cuts and staffing reductions at the BLS. These issues have led to the suspension of data collection for certain CPI components in some regions. The situation was further complicated by the recent firing of BLS chief Erika McEntarfer after July’s disappointing jobs report. Additionally, President Trump’s nomination of E.J. Antoni—a Heritage Foundation economist and BLS critic—to lead the agency has sparked unease among some economists, given Antoni’s involvement in the controversial “Project 2025” government overhaul plan.
President Trump dismissed concerns about tariffs fueling inflation, claiming on Truth Social that they have not caused “any problems for Country.” Meanwhile, the CPI’s subdued headline number was partly due to a 2.2% drop in gasoline prices and stagnant food costs, with grocery prices dipping slightly as falling egg prices offset increases in beef and milk. Economists remain divided on whether the Fed will cut rates next month, with some emphasizing inflation risks and others focusing on labor market vulnerabilities. As August’s jobs and inflation reports loom, the central bank’s decision remains far from certain.