U.S. Inflation Rate Stabilizes at 2.7% in July 2025 Amid Falling Gas Prices and Tariff-Driven Core Inflation Rise

The U.S. Consumer Price Index (CPI) rose 2.7% in July 2025 compared to a year earlier, the Bureau of Labor Statistics reported Tuesday. This annual rate was unchanged from June and below economists’ expectations of 2.8%, as falling gasoline and grocery prices helped offset price increases in other areas.

On a monthly basis, consumer prices increased 0.2% from June. Gasoline prices fell 2.2% and grocery prices declined 0.1% month-over-month, providing temporary relief to consumers. However, prices for some imported goods, including toys, home furnishings, appliances, and tools, rose due to tariffs imposed by the Trump administration. Economists attributed some of the upward pressure in certain categories to these tariffs, which are expected to have a greater impact in the coming months.

The core CPI — which excludes volatile food and energy prices — increased 3.1% in July from a year earlier, up from a 2.9% annual rate in June. This marks the fastest annual increase in core CPI since February. On a monthly basis, core CPI rose 0.3%, its highest rate since January. Michael Pearce, deputy chief U.S. economist at Oxford Economics, projected that core inflation could reach 3.8% by year-end as tariff effects become more pronounced.

Economists noted that while overall inflation remains moderate compared to previous years, consumers are likely to feel more financial strain as tariffs continue to be passed on from businesses to households. Gus Faucher, senior vice president and chief economist at PNC Financial Services Group, stated: “Consumers are going to start to feel a little more stretched over the next few months as we see more of the impact of tariffs passed through from businesses to consumers.”

Shelter costs — a significant component of services inflation — continued to apply pressure, contributing to the overall increase in core prices. The "core goods" category, which includes many tariff-impacted imports, rose 0.2% for the second consecutive month.

Financial markets reacted positively to the data. On Tuesday, the Dow Jones Industrial Average closed up 480 points (1.09%), the S&P 500 gained 0.73%, and the Nasdaq Composite rose 0.72%.

The July 2025 CPI report suggests that while headline inflation remains stable, there are underlying cost pressures building, particularly from tariffs and housing-related expenses, which could push core inflation higher in the coming months.

On Tuesday, the U.S. Bureau of Labor Statistics released Consumer Price Index (CPI) data for July 2018, showing that overall consumer prices increased by 0.2% from June, keeping the annual inflation rate steady at 2.7%. The figures were slightly below economists’ expectations, which had forecast a 0.2% monthly increase and an annual rate of 2.8%, according to FactSet.

The report noted that falling gasoline prices helped restrain overall inflation. However, President Donald Trump’s tariffs on imported goods contributed to higher prices for several categories, including toys, home furnishings, appliances, and tools. Gus Faucher, Senior Vice President and Chief Economist at PNC Financial Services Group, stated, “We have seen moderate inflation over the last year — certainly, prices are not going up nearly as quickly as they were a few years ago. But I do think that consumers are going to start seeing more price increases at the grocery store, at Amazon, things like that.” He warned that consumers may feel more financial strain in the coming months as tariff impacts are increasingly passed through to consumers.

The core CPI, which excludes food and energy prices due to their volatility, rose 0.3% from June, marking the fastest monthly increase since January. This brought the annual core inflation rate to 3.1%, the highest in five months. The core goods category, a focus due to its sensitivity to tariff effects, rose 0.2% for the second straight month. Services, particularly housing-related shelter costs, were the largest contributors to price pressures.

While some tariff-exposed goods did rise in price, the main cost driver in July came from the services sector. Economists had expected slightly higher inflation for the month, but the modest overall increase contrasts with rising core inflation, suggesting that underlying price pressures may be stronger than the headline figure indicates.

Financial markets reacted positively to the report, with the Dow Jones Industrial Average rising 480 points (1.09%), the S&P 500 up 0.73%, and the Nasdaq Composite gaining 0.72%.

According to Faucher, sustained stability in gas prices could still lead to higher overall inflation, putting additional pressure on consumers. The data reflects both moderating influences from energy prices and intensifying pressures from tariffs and service sector costs.

On Tuesday, the Bureau of Labor Statistics released the Consumer Price Index (CPI) report for July, showing that the year-on-year increase for the broadest inflation measure was 2.7%, unchanged from June and below the forecasted 2.8%. However, the core CPI, which excludes volatile food and energy prices, rose to 3.1% from 2.9% in June, marking its highest level since February.

The report indicated mixed effects from President Donald Trump’s trade tariffs. Furniture prices grew in July, apparel price growth slowed, and appliance prices declined. The primary contributors to inflation were categories unrelated to trade tariffs, such as housing, airfare, and car insurance.

Seema Shah, chief strategist at Principal Asset Management, noted that there are some signs of tariff-related price increases, but they are not yet significant. She cautioned that the impact may grow once pre-tariff inventory reserves are depleted. Shah suggested that tariff-driven inflationary pressures are likely to increase in the coming months, coinciding with potential Federal Reserve interest rate cuts.

Following the release of the CPI data, President Trump criticized Federal Reserve Chair Jerome Powell on social media, urging immediate interest rate reductions.

The June consumer price index (CPI) report, scheduled for release on Tuesday at 8:30 a.m. ET, is anticipated to provide important insights into how recently imposed tariffs are influencing consumer prices in the United States. While headline and core inflation numbers are expected to increase by around 0.3% monthly, with annual rates forecasted at 2.7% headline and 3.0% core (excluding food and energy), analysts are focusing closely on specific sectors to detect tariff effects. Chris Hodge, head U.S. economist at Natixis CIB Americas, highlighted autos and apparel as key tariff-sensitive categories that had surprisingly low price changes in May despite new duties, hinting that June's reading will reveal more noticeable tariff impact. May’s CPI showed subdued pressure with both headline and core rising only 0.1%, where new and used vehicle prices even fell by 0.3% and 0.5%, and apparel prices dropped 0.4%. Economists, including those at Goldman Sachs, expect these trends to reverse with the June report. Goldman forecasts a 0.2% core CPI increase, slightly below consensus, but anticipates tariff-driven price hikes to contribute roughly 0.08 percentage points to core inflation. Other tariff-affected categories expected to show price increases include furniture, recreation, education, communication, and personal care. Shelter prices are also being closely monitored due to their persistent strength. The report holds significance as it might validate concerns from Federal Reserve officials who view core CPI as a crucial gauge of long-term inflation trends, contrasting with President Trump's more optimistic stance on tariff risks. This June CPI report will be pivotal in evaluating how tariff policies are translating into consumer expenses, potentially influencing Federal Reserve policy and economic outlook.

In May 2025, the US core inflation rate, measured by the Personal Consumption Expenditures (PCE) price index excluding food and energy, rose by 0.2% month-over-month, resulting in an annual inflation rate of 2.7%. This figure surpassed economists' expectations, who predicted a 0.1% monthly increase and an annual rate of 2.6%. The overall PCE price index rose by 0.1% during the month, placing the annual inflation rate at 2.3%, aligning with forecasted figures. Core inflation is considered by Federal Reserve policymakers to be a nuanced indicator of long-term inflation trends, given the volatility typically seen in food and energy prices. The May reading edged the annual core inflation rate 0.1 percentage points higher than the April level, moving it further away from the Federal Reserve's 2.0% inflation target, a target not met since early 2021. Alongside inflation metrics, consumer spending and personal income exhibited downward trends; spending declined by 0.1%, against expectations for a 0.1% rise, while personal income dropped by 0.4% as opposed to a forecasted 0.3% increase. Experts, including Gary Schlossberg, market strategist at the Wells Fargo Investment Institute, interpret these data as indicators of a gradually weakening economy entering the second quarter, compounded by anticipated tariff increases expected to take effect through summer and early fall. The Federal Reserve faces pressure from President Donald Trump to lower interest rates amid these conditions, although Fed Chair Jerome Powell has adopted a cautious stance. Despite the fall in inflation and spending figures being somewhat muted, the report highlights the economic impact of Trump's trade war tariffs, resulting in increased price pressures but reduced consumer expenditure and income. EY-Parthenon senior economist Lydia Boussour noted that consumers reduced discretionary spending due to softer labor market conditions, financial uncertainty, and the onset of tariff-induced price rises. Furthermore, Minneapolis Federal Reserve President Neel Kashkari remarked on the absence of stronger data showing tariff-driven inflation thus far. The overall significance lies in these mixed signals that suggest inflation pressures are emerging but consumer activity is contracting, posing challenges for the Federal Reserve’s monetary policy decisions and the broader US economic outlook amid ongoing trade tensions and tariff policies.