US inflation remained steady in July despite tariffs on imports, reinforcing speculation that the Federal Reserve might reduce interest rates next month.
Recent official data indicated that consumer prices increased by 2.7% over the year leading up to July, maintaining the same growth rate as in June, as a decline in energy prices countered rises in costs for items like coffee, tomatoes, and tools.
Experts noted that the relatively modest rate of price increases may strengthen the argument for the US central bank to lower interest rates in order to stimulate the economy as job growth begins to slow.
However, a core inflation metric—which is considered a more accurate reflection of economic trends—revealed that prices were rising at the quickest rate since February.
Core inflation, which excludes food and energy prices, climbed by 3.1%, marking the fastest increase in six months according to the data released on Tuesday.
Seema Shah, the chief global strategist at Principal Asset Management, expressed her continued expectation that the Federal Reserve would reduce interest rates in September to provide a boost to the US economy.
"There are some indications of tariffs affecting consumer prices, but currently, it is not enough to raise major concerns," she stated.
Nevertheless, she cautioned that the decision might become more complex in the coming months as companies begin to deplete their inventories of goods imported prior to the imposition of tariffs.
The US Federal Reserve aims for an inflation rate of 2%.
With the current rate exceeding this goal, the Fed has opted to keep interest rates steady this year, despite pressure from President Donald Trump to lower borrowing costs, out of concern that tariffs, which are taxes on imports, could accelerate price increases.
Trump has disregarded worries that these measures will raise prices or negatively impact the economy.
He recently terminated Erika McEntarfer, who led the Bureau of Labor Statistics, after the agency - responsible for compiling inflation figures - released underwhelming jobs data that raised concerns regarding the president's tariff policy.
On Tuesday, he reiterated his demand for lower interest rates and revived threats aimed at Jerome Powell, the chair of the central bank.
The president cautioned that he would "allow" a "major lawsuit" to proceed against Mr. Powell concerning a renovation of Federal Reserve properties.
"Jerome 'Too Late' Powell must NOW reduce the rate," Trump stated on social media.
The Federal Reserve was created by Congress and possesses the authority to set policy independently of the executive branch.
Rising Costs
Lindsay James, an investment strategist at Quilter, commented that the most recent inflation figures are "complicated," providing evidence for both perspectives regarding whether tariffs will cause a substantial rise in prices.
The report indicated price increases for the month from June to July in commonly imported products like tomatoes, which saw a 3.3% rise, and coffee, which increased by 2.3%.
During the same monthly period, costs for rugs and curtains went up 1.2%, while tools and hardware saw a 1.6% increase.
However, many aspects contributing to inflation were in sectors not directly impacted by tariffs.
For instance, airfare prices surged by 4% in the year leading to July, while dental services experienced a 2.6% increase.
The price of clothing, one category anticipated to be most severely affected by the new tariffs, only increased by 0.1% during the month, a decline from June's figures.
"In the near term, markets will probably react positively to these numbers since they should allow the Fed to concentrate on weakness in the labor market and keep a September rate cut on the table," stated Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management.
"Over the long term, we likely haven't reached the peak of rising costs as tariffs continue to influence the economy," she remarked.
The average tariff rate in the United States has escalated this year, with a minimum tax of 10% imposed on most goods since April, and specific items like cars subject to even higher fees.
As the new tariffs took effect this month, the majority of goods entering the United States are facing taxes ranging from 10% to 50%, depending on their source.
Nonetheless, Trump has excluded certain critical items, such as most imports from Canada and Mexico, along with categories like oil and smartphones.
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