CPI inflation report July 2025:

A popular measure of inflation slightly accelerated less than anticipated in July on an annual basis due to the impact of President Donald Trump’s tariffs being relatively modest.

The consumer price index rose by 0.2% for the month and 2.7% over the past 12 months, according to the Bureau of Labor Statistics report released on Tuesday. These figures were slightly lower than the 0.2% and 2.8% estimates provided by Dow Jones, respectively.

Excluding food and energy, the core CPI increased by 0.3% for the month and 3.1% from a year ago, compared to the predicted 0.3% and 3%. The monthly core rate marked the largest increase since January.

The index’s rise was primarily driven by a 0.2% increase in shelter costs, while food prices remained unchanged and energy prices dropped by 1.1%, as reported by the BLS. Tariff-sensitive new vehicle prices showed no change, but used cars and trucks saw a 0.5% increase. Transportation and medical care services both saw a rise of 0.8%.

Following the report, stock market futures experienced gains, Treasury yields decreased, and traders increased bets on the possibility of the Federal Reserve implementing rate reductions in September.

Although tariffs did have an impact on certain categories, the overall effect was not as significant as expected.

Household furnishings and supplies saw a 0.7% increase, apparel prices rose by just 0.1%, and core commodity prices increased by 0.2%. Canned fruits and vegetables, which are typically imported and tariff-sensitive, remained unchanged.

“The tariffs are reflected in the data, but they are not causing major concerns at this point,” stated former White House economist Jared Bernstein during an interview on CNBC. Bernstein served under former President Joe Biden.

This report comes at a critical juncture for both the economy and the BLS, which has faced criticism from President Trump for alleged political bias. Trump recently nominated E.J. Antoni, a BLS critic, as the new chief following the release of a disappointing July nonfarm payrolls report.

The BLS has faced challenges due to budget cuts and reduced staff, leading to data collection halts in multiple cities. The bureau has had to estimate values for various goods and services, raising concerns about data accuracy and credibility.

Despite the political turmoil, Fed officials are closely monitoring inflation indicators as they consider their next interest rate decision in September.

“Inflation is increasing, but not as rapidly as some had feared,” said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management. “In the short term, these numbers are likely to be well-received by the markets, as they should allow the Fed to focus on labor market weaknesses and maintain the possibility of a rate cut in September. However, in the long run, rising prices are expected to continue as tariffs impact the economy.”

The key question is whether tariffs will result in a temporary price hike or a sustained inflationary trend. Economists generally believe the impact will be temporary, but the wide range of items affected by Trump’s policies has raised concerns about a prolonged effect.

Market futures indicate a strong possibility of a Fed rate cut in September. However, upcoming data releases could influence the decision for that meeting and future actions by the central bank. Recent statements from Fed officials have shown increasing concern about the labor market, suggesting a likelihood of rate cuts.

Traders have increased the odds of a September rate cut following the latest report, and the chances of another reduction in October have also risen, according to the CME Group’s FedWatch tool.

While the CPI is not the Fed’s primary inflation gauge, it contributes to the calculation of the Commerce Department’s personal consumption expenditures price index, along with the producer price index set to be released later this week.

Adjusted for inflation, average hourly earnings rose by 0.1% for the month, with an annual increase of 1.2%, according to a separate release by the BLS.