While underlying inflation increased to its highest level in five months due to tariffs pushing up the cost of imported products while gas and grocery prices decreased, U.S. inflation remained constant in July.
The Labor Department said on Tuesday that consumer prices increased 2.7% in July compared to the same month last year, up from a post-pandemic low of 2.3% in April. Core prices increased 3.1% from 2.9% in June when the erratic food and energy categories were excluded. Both numbers exceed the 2% target set by the Federal Reserve.
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According to the data, some of the effects of President Donald Trump’s broad tariffs are being mitigated by slower rent rises and lower gas prices. A portion of the duties’ costs are also being borne by other companies. Trump’s 10% global tariff from April and increased duties on nations like China and Canada are probably contributing factors to Tuesday’s numbers.
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Nevertheless, the Federal Reserve is in a tough position due to persistently rising inflation: hiring fell precipitously in the spring following Trump’s announcement of tariffs in April. Financial market expectations for a central bank interest rate cut have increased as a result of the stalling out of job gains.
Trump, who has disregarded conventional standards of central bank independence and sought lower borrowing prices, is incensed at Chair Jerome Powell’s warning that rising inflation may force the Fed to remain on the sidelines.
According to the government statistics, gas prices have dropped 9.5% from a year ago and 2.2% from June to July. Despite a 0.1% decrease last month, grocery costs are still 2.2% higher than they were a year ago. However, the cost of dining out kept climbing, going up 3.9% from a year ago and 0.3% in July.
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Some imported goods seemed to cost more as a result of tariffs: Although shoe prices increased 1.4% between June and July, they are still only 0.9% more expensive than they were a year ago. Furniture prices increased by 0.9% in July and are now 3.2% more expensive than they were a year ago. Although they are still marginally less expensive than they were a year ago, clothing costs increased by 0.1% in July following a higher increase in June.
The Bureau of Labor Statistics of the Labor Department, which compiles and disseminates the inflation data, receives Tuesday’s data at a very sensitive time. After the August 1 employment report also revealed far lower hiring for May and June than previously reported, Trump removed Erika McEntarfer, who was then the head of BLS.
E.J. Antoni, an economist at the conservative Heritage Foundation and a vocal opponent of the employment report, was chosen by the president to succeed McEntarfer, he announced on social media on Monday.
Trump stated on Truth Social that E.J. will guarantee that the numbers made public are FACTUAL AND HONEST.
A government-wide staffing freeze has further exacerbated the BLS’s problems, forcing it to reduce the amount of data it gathers for each inflation report, the agency said. BLS is currently gathering roughly 18% fewer price quotes for the inflation report than it did a few months ago, according to UBS economist Alan Detmeister. He believes the report will yield more erratic results, but they will still be dependable when averaged over time.
As Trump starts to finalize tariffs, Americans will probably have to pay more in the upcoming months. According to economists, companies are more inclined to pass on expenses to customers once they are aware of what they would be paying.
In order to counterbalance the tariffs, Trump has asked that foreign manufacturers lower their costs. However, since the taxes were implemented, import prices haven’t decreased all that much.
According to Goldman Sachs economists, only 14% of the charges have been absorbed by foreign manufacturers as of June; 22% have been paid by consumers, and 64% have been paid by American businesses. However, experts predict that by this fall, consumers would face 67% of the expense, while foreign exporters pay 25% and U.S. corporations handle just 8%, based on past trends like Trump’s 2018 taxes on washing machines.
The tariffs are causing several big American companies, such as the clothing brands Ralph Lauren and Under Armour and the eyeglasses brand Warby Parker, to raise their prices.
Late this month, the massive consumer goods company Procter & Gamble, which produces Crest toothpaste, Tide detergent, and Charmin toilet paper, said that it would increase the cost of roughly 25% of its products by mid-single digits.
Additionally, cosmetics manufacturer e.l.f. Beauty, which produces most of its goods in China, announced on Wednesday that it had increased prices by $1 on all of its product lines as of August 1 due to tariff charges. This is the third price increase in the company’s 21-year existence.
During an earnings call on Wednesday, CEO Tarang Amin stated, “We tend to lead and then we will see how many more kind of follow us.”
Many businesses are increasing prices selectively rather than uniformly to counteract tariffs, according to Matt Pavich, senior director of strategy and innovation at Revionics, a startup that offers AI tools to big retailers to assist them in evaluating pricing decisions.
According to Pavich, we haven’t yet witnessed a significant impact on retail costs for customers. As we have seen, they are now rising.
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This article was written by Anne D’Innocenzio, a retail writer for the Associated Press in New York.
