US inflation held steady last month as tariff hit offset by cheaper gas, food

WASHINGTON (AP) — U.S. inflation was unchanged in July as rising prices for some imported goods were balanced by falling gas and grocery prices, leaving overall prices modestly higher than a year ago.

Consumer prices rose 2.7% in July from a year earlier, the Labor Department said Tuesday, the same as the previous month and up from a post-pandemic low of 2.3% in April. Excluding the volatile food and energy categories, core prices rose 3.1%, up from 2.9% in June. Both figures are above the Federal Reserve’s 2% target.

The figures suggest that slowing rent increases and cheaper gas are offsetting some impacts of President Donald Trump’s sweeping tariffs. Many businesses are also absorbing much of the cost of the duties. Tuesday’s figures likely include some impact from the 10% universal tariff Trump imposed in April, as well as higher duties on countries such as China and Canada.

The figures still leave the Federal Reserve in a difficult spot: Hiring slowed sharply in the spring, after Trump announced tariffs in April. The stalling out of job gains has boosted financial market expectations for an interest rate cut by the central bank, and some Fed officials have raised concerns about the health of the job market. A rate cut by the Fed often, but not always, lowers borrowing costs for mortgages, car loans, and business loans.

Economists are divided over how Fed officials will read the data in the coming months. Some argued that the worsening jobs picture will outweigh lingering inflation concerns and lead the Fed to cut at its next meeting in September. Yet some say that with core inflation notably above 2% and rising, the Fed will hold off on reducing borrowing costs.

Chair Jerome Powell has warned that worsening inflation could keep the Fed on the sidelines — a stance that has enraged Trump, who has defied traditional norms of central bank independence and demanded lower borrowing costs.

On Tuesday, Trump attacked Powell again for not cutting rates and suggested he would allow a lawsuit against the Fed to proceed because of the rising costs of its extensive building renovation. It wasn’t clear what lawsuit he was referring to.

On a monthly basis, prices rose 0.2% in July, down from 0.3% the previous month, while core prices ticked up 0.3%, a bit faster than the 0.2% in June.

Many economists expect the impact of tariffs will continue to push inflation higher in the coming months, even as the impact of the duties has so far not been as large as many feared.

Brian Bethune, an economist at Boston College, said that overall U.S. tariffs — calculated as the amount of duties paid by U.S. companies divided by overall imports — has reached 10%, the highest in decades, and will likely keep rising for months.