July CPI - Lighter-than-expected; cut ahead?

In July, consumer prices as measured by CPI, rose 2.7% compared to a year ago, unchanged from June and below expectations for +2.8%.  Core CPI (“underlying inflation”; excludes volatile food and energy prices) rose 3.1%, up from 2.9% in June and above expectations for 3.0%.  Overall, today’s report came in lighter-than-expected against a backdrop of tariff concerns and trade policy uncertainty.  Following a surprisingly weak July jobs report released on August 1, investors have ratcheted up bets on a rate cut following the Fed’s next meeting in September.  Policymakers have been patiently evaluating incoming data to see how trade policy decisions will impact inflation and the labor market.  While trade policy continues to evolve, we have to assume that tariffs are at least partially reflected in the inflation numbers which thus far have not been as bad as feared.  Meanwhile, the health of the labor market has been called into question.  Fed officials will have the benefit of additional inflation reports and another jobs report before meeting in September.

•  Consumer prices (CPI) increased 2.7% year-over-year. In July, the consumer price index (CPI) increased 2.7% – unchanged from June and below expectations for 2.8%.  The cost of used vehicles (+4.8%), shelter (+3.7%) and food (+2.9%) were key contributors to the overall increase, more than offsetting declines in gasoline (-9.5%).  Shelter costs, which represent nearly one third of the consumer price index and tend to impact the index with a lag, continued an elongated path of deceleration.  At +3.7% year-over-year, shelter inflation decelerated modestly from 3.8% in June 2025 and is down from a peak of 8.2% in March 2023.  Core CPI (excludes food and energy) increased 3.1% year-over-year, up from 2.9% in June and above expectations for 3.0%.
•  Consumer prices (CPI) rose 0.2% month-over-month.  In July, consumer prices rose 0.2% month-over-month down from 0.3% in June and in line with expectations.  Core CPI (excludes food and energy) increased 0.3% month-over-month, up from 0.2% in June and in line with expectations.