Inflation Eases Past Forecasts but Still Shows Core Strength
US inflation ticked higher in July, but the pace was slightly softer than expected, offering a mixed signal for markets and policymakers. The consumer price index (CPI) rose 0.2% on a seasonally adjusted basis and 2.7% year-over-year, just below the 2.8% forecast. The data, released by the Bureau of Labor Statistics (BLS), showed core CPI — excluding food and energy — up 0.3% for the month and 3.1% annually, surpassing the 3% estimate. That monthly core gain marked the largest rise since January.
Shelter and Services Prices Drive July Increase
Shelter costs rose 0.2%, remaining a key driver of inflation, while food prices were flat and energy costs dropped 1.1%. Used vehicles climbed 0.5%, and both transportation services and medical care services jumped 0.8%. Some tariff-related effects appeared in categories like household furnishings, which rose 0.7% after a 1% jump in June. Former White House economist Jared Bernstein noted on CNBC that while tariffs are in the data, they are “not yet creating major spikes.”
Tariffs and Tensions With the BLS
The release comes amid political friction between President Donald Trump and the BLS. Earlier this month, Trump removed the commissioner following a weak jobs report and announced plans to nominate E.J. Antoni, a frequent critic of the bureau, as the next chief. Analysts continue to debate whether Trump’s tariff policy will meaningfully influence prices, with the latest CPI suggesting only limited near-term impact.
Rate Cut Expectations Surge After Data
Markets quickly priced in higher odds of Federal Reserve rate cuts. The September meeting now carries a 91.8% chance of a cut, up from 85.9% a day earlier. October odds jumped to 66.3% from 55.1%, and December to 56.7% from 45%. Skyler Weinand of Regan Capital said the mild CPI gives the Fed “room to lower rates by 25 basis points in September, with the possibility of 50 basis points.”
Wall Street Sees Temporary Price Pressures
Goldman Sachs strategist Alexandra Wilson-Elizondo argued that tariff effects will be temporary, with companies managing costs carefully to avoid alienating consumers. Josh Jamner of ClearBridge Investments said the CPI alignment with expectations means the September cut remains on track, while Art Hogan of B. Riley Wealth likened market reaction to “whether a falling tree makes a sound if no one hears it.” For now, the slightly softer inflation print is being taken as a green light for monetary easing.
