Inflation holds steady; consumer prices up 2.7%

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.

- By CHRISTOPHER RUGABER

A SHOPPER looks at pet supplies. Many businesses are likely still absorbing much of the cost of U.S. tariffs.

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 new numbers suggest that slowing rent increases and cheaper gas are offsetting some effects of President Trump’s sweeping tariffs. Many businesses are also likely still absorbing much of the cost of the duties. Tuesday’s figures probably reflect some effect from the 10% universal tariff Trump imposed in April, as well as higher duties on countries such as China and Canada.

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.

“Those cost increases will be passed on to the consumer in some way, shape or form,” Bethune said. Some companies could return to “shrinkflation,” he added, in which they reduce the package size of a good while keeping the price the same.

‘And companies that are absorbing tariff costs, which would cut into their profit margins, are less likely to hire new employees, he said.

The Federal Reserve may now be 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 at its next meeting in September, 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.