US inflation report shows deepening impact of Trump’s tariffs

NEW YORK – Inflation in the US rose in July, as President Donald Trump’s tariffs intensified price pressures across a wider range of consumer goods and services.

The consumer price index (CPI) stayed steady at 2.7 per cent compared with the same time in 2024. On a monthly basis, prices rose 0.2 per cent from June. But an important gauge tracking underlying inflation accelerated more rapidly.

The so-called core CPI, which strips out volatile food and energy prices, jumped 0.3 per cent over the course of the month, or 3.1 per cent on a year-over-year basis. That is the fastest annual pace in five months. In June, core inflation rose 0.2 per cent from the previous month, or 2.9 per cent from July 2024.

The July data released by the Bureau of Labour Statistics provides a clear sign that businesses are more readily passing along tariff-related costs to their customers after a prolonged period in which price gains were muted.

US companies that import products have largely been able to hold off raising prices despite a universal 10 per cent tariff that has been in place on all imports since April, along with higher tariffs on steel, aluminium, and products from China and Canada. Mr Trump’s more punishing tariffs on individual countries went into effect on Aug 7, so they were not reflected in the July data.

Businesses have managed to avoid passing along price increases because of a strategy earlier in the year of stockpiling goods that were likely to be subject to Mr Trump’s tariffs. Many companies have also sought to absorb the costs themselves to avoid driving away customers, some of whom are increasingly under financial strain.

But the July data showed more businesses reaching a tipping point, left with little option but to raise prices following June’s notable uptick. The biggest impact has so far been concentrated in categories such as furniture, appliances and other household wares, as well as recreation goods and footwear.

New and used car price increases have stayed relatively subdued as carmakers have shielded their customers from Mr Trump’s duties rather than forcing them to bear the brunt of the higher costs. But economists worry that this reprieve will soon end, dampening already slowing demand.

Americans have become more choosy about how they spend, helping to depress airline fares, hotel fees and other services-related costs. Hiring across the country has slowed in recent months, keeping a lid on wage gains. July’s jobs report showed just 73,000 jobs added for the month, and gains registered in May and June were revised down by an unusually high total of 258,000. Companies have yet to lay off workers in droves, but economists worry they will be forced to cut back on costs as tariffs continue to eat into margins.

The July data will be important for the Federal Reserve, which is facing a challenging economic situation in which prices are rising while the labour market is weakening. It is a difficult backdrop given the Fed’s duty to keep inflation low and stable while also ensuring that unemployment does not rise too much. Officials at the central bank have kept interest rates steady since the start of the year as they have sought more clarity on how Mr Trump’s policies, including tariffs, would impact the economy.

That approach has attracted significant criticism from the President, who has taken to directly insulting Fed chair Jerome Powell, as well as the powerful board of governors that he heads.

Mr Trump last week announced that he would install a temporary governor to join the board, which votes on interest rates at every policy meeting. A vacancy unexpectedly opened up at the start of August when Ms Adriana Kugler, a governor, announced she was leaving before her term was set to expire at the end of January. The President tapped a longstanding critic of the Fed, Mr Stephen Miran, who most recently served as chair of Mr Trump’s Council of Economic Advisers.

Mr Miran, who still must be confirmed by the Senate, will join a group of Fed officials who have started to splinter over the right time to restart interest rate cuts that were paused in December. Two policymakers, previously appointed by Mr Trump, have already called for the Fed to cut interest rates.

More policymakers appear to be joining that camp following the most recent data that showed far less monthly jobs growth since the start of the summer than initially expected. But signs that inflation is accelerating more than is already forecast could disrupt any plan to lower interest rates at the central bank’s next meeting in September. Earlier this summer, Mr Powell conceded that were it not for tariffs, the Fed likely could have reduced borrowing costs already.

July’s inflation report is also the first big economic data release from the Bureau of Labour Statistics since Mr Trump fired its head after the weaker-than-expected jobs report. The president claimed without evidence that Ms Erika McEntarfer, who had run the agency since 2024, had “rigged” the federal hiring data to harm him politically. Economists decried that move, warning that any attempt to undermine what has always been considered reliable, independently produced statistics from the government agency would be economically and financially damaging.

On Aug 12, the president announced his decision to nominate economist E.J. Antoni at the conservative Heritage Foundation who has criticised the BLS in the past, to lead the agency.

NYTIMES