US headline consumer inflation remained unchanged in July, while so-called core inflation accelerated, showing some pass-through of higher costs caused by the onset of President Donald Trump's tariffs.
The consumer price index (CPI) rose last month by a 2.7pc annual pace, matching the gain in June, the Bureau of Labor Statistics (BLS) said Tuesday. July's gain was under the 2.8pc median estimate of economists surveyed by Trading Economics.
Core inflation, which strips out volatile food and energy, rose at a 3.1pc annual pace after a 2.9pc gain in June, higher than analysts' estimates of 3pc.
The energy index fell by 1.6pc in July after falling by 0.8pc in the 12 months through June. The food index rose by 2.9pc in July, slowing from a 3pc pace in June.
The CME's FedWatch tool after the inflation report showed a 94.2pc probability the Federal Reserve will cut its target rate by a quarter point at its September meeting, up from 85.9pc on Monday. Probabilities were at about 57pc a month ago, before the 1 August employment report with revisions showing the weakest hiring in the three months through July since 2020.
Fed policymakers have repeatedly said they will continue to monitor the effects of Trump's tariff, fiscal and immigration policies before cutting rates, after holding the target rate steady at 4-4.25pc since December.
The pass-through from the tariffs was uneven in July, with appliances down by a monthly 0.9pc and laundry equipment down by 1.8pc. Still, costs of coffee are up 2.3pc over the month, while frozen non-carbonated juices and drinks are up by 5.3pc. Motor vehicle repair is up 1pc and air fares are up 4pc for the month.
"Pass-through from the tariffs to consumer prices eased in July, but the process is not over," according to a note from Pantheon Macroeconomics. "Some monthly variation in price changes is normal and it remains the case that prices have risen the most since January for goods that are primarily imported."
The average effective tariff rate on US imports has increased to 19pc, Pantheon said, adding that it expects "about one-third of the costs to be offset by trade flows shifting and retailers absorbing some of the costs."
Services less energy services, viewed as a core services measure, rose by 3.6pc in July, unchanged from the prior month. Motor vehicle insurance was up by an annual 5.3pc and hospital services were up by 5.8pc
Gasoline fell by 9.5pc in July after a 8.3pc annual decline through June, while piped gas services rose by 13.8pc in July.
Shelter costs rose by 3.7pc in July, slowing from 3.8pc the prior month, and new vehicle prices rose at a 0.4pc annual rate following a 0.2pc annual gain through June.
On a monthly basis, the CPI rose by 0.2pc in July after a 0.3pc in gain June. Core prices rose by 0.3pc in July, the highest since January, following a 0.2pc uptick in June.