By Christopher Lugerber, Economics writer for the Associated Press
WASHINGTON (AP) – U.S. inflation remained the same in July, but the underlying inflation measure rose to its highest level in five months as tariffs pushed import prices high while gas and groceries prices cooled.
Consumer prices rose 2.7% in July from a year ago, the Labor Bureau said the same as Tuesday. Excluding the volatile food and energy categories, core prices rose 3.1% from 2.9% in June. Both figures surpass the Federal Reserve’s 2% target.
The numbers suggest that slower rents and slower cheap gas offset some of the effects of President Donald Trump’s sweeping tariffs. Also, many companies absorb some of the costs of their jobs. Tuesday’s figures could include the impact from the 10% universal tariff imposed in April, and include higher obligations in countries such as China and Canada.
Still, stubbornly high inflation places the Federal Reserve in a difficult place. After Trump announced tariffs in April, adoption was drastically slower in the spring. The slowdown in employment profits has raised financial market expectations for central banks to cut interest rates.
Chairman Jerome Powell warned that worsening inflation could keep the Fed on the sidelines. This is a stance that angered Trump for ignoring the traditional norms of central bank independence and demanding lower borrowing costs.
According to government reports, gas prices fell 2.2% between June and July, and plunged 9.5% from the previous year. Grocery prices slipped 0.1% last month, but are 2.2% higher than a year ago. Restaurant meals continue to be expensive, up 0.3% in July and 3.9% from the previous year.
The tariffs appeared to have increased the costs of some of the imported goods. Shoe prices rose 1.4% between June and July, but are 0.9% more expensive than a year ago. Furniture costs jumped 0.9% in July, 3.2% higher than a year ago. Clothing prices rose 0.1% in July after a significant rise in June, but slightly cheaper than a year ago.
Tuesday’s data arrives at a highly charged moment in the Labor Bureau’s Bureau of Labor Statistics, which collects and publishes inflation data. Trump fired BLS head Erica Mantelfer after the August 1 employment report.
The president posted on social media on Monday that he had chosen Eji Antoni, a conservative Heritage Foundation economist and frequent critic of employment reports.
“EJ ensures that the numbers released are honest and accurate,” Trump said in the Society of Truth.
In addition to the BLS disruption, there was a government-wide employment freeze that forced them to reduce the amount of data they collect per inflation report, the agency said. UBS economist Alan Detmeister estimates that BLS is collecting about 18% of the price estimates for its inflation report than it did a few months ago. He believes the report produces more volatile results, but it has become average over time, but is reliable.
Americans could absorb more trade costs in the coming months as Trump begins to finalise tariffs. According to economists, if companies know what they pay, they are more likely to pass those costs to their customers.
Trump claims that overseas manufacturers will pay tariffs by lowering prices and offsetting duties. However, since taxation was introduced, pre-import prices have not fallen much.
Goldman Sachs economists estimate that foreign manufacturers only absorbed 14% of their duties until June, while 22% are paid by consumers and 64% by US companies. However, based on previous patterns such as Trump’s 2018 washing machine duties, economists expect consumers to pay 67% of the burden by this fall, while foreign exporters will pay 25% and US companies will handle just 8%.
Many large US companies have increased prices in response to tariffs, including apparel manufacturers Ralph Lauren and Under Armour and eyewear company Warby Parker.
Consumer Products Giant Procter & Gamble, the maker of Crest Toothpaste, Tide detergent and Charmin toilet paper, said later last month it would raise the price of its products by a single-digit half-digit percentage.
Elf Beauty, a cosmetics manufacturer that makes most of China’s products, also said Wednesday that it had raised prices on its entire product as of August 1 due to customs costs.
“We tend to lead and then there will be a few more followers,” CEO Taran Amin said in a revenue call on Wednesday.
Matt Pavich, senior director of strategy and innovation at Revionics, says that as a company that provides AI tools to large retailers to assess pricing decisions, many companies are selectively raising prices to offset tariffs rather than nationwide.
“Until now, it has never been a huge hit with consumers at retail prices,” Pavic said. “Now they’re up, we saw it.”
Anne D’Hyneanzio, retail author of the Associated Press in New York, contributed to this report.
Original issue: August 12, 2025 9:14am EDT
