The annual inflation rate held steady at 2.7% in July, according to new data from the Labor Department. Falling gasoline prices offset increases in housing, transportation, and other goods and services.
The consumer price index (CPI), a broad measure of what Americans pay for everyday items like gas, food, and rent, rose 0.2% from June. That matched economists’ forecasts.
Core inflation, which leaves out volatile food and energy costs, rose 0.3% in July. It is up 3.1% from a year ago. The annual rate came in slightly hotter than expected, but the monthly number was in line with projections.
The report showed mixed signals for households. Food prices overall were flat from June. Grocery costs dipped 0.1%, while restaurant prices climbed 0.3%. Over the year, food prices rose 2.9%. Groceries are up 2.2% and dining out is up 3.9%.
Egg prices fell 3.4% last month but remain 16.4% higher than a year ago. Meat, poultry, and fish prices climbed 0.7% in July and 4.6% from last year.
Energy costs fell 1.1% last month and are down 1.6% year-over-year. Gas prices dropped 2.2% in July. They are 9.5% lower than in July 2024.
Housing costs ticked up 0.2% on the month and are 3.7% higher than a year ago. Shelter remains the main driver of the index’s increase. Transportation costs rose 0.8% in July. Airfares jumped 4% in July and are slightly higher than a year ago.
Economists say parts of the report are worth watching. Greg McBride of Bankrate pointed to “persistent trouble spots” such as medical care, household furnishings, recreation, and personal care. These categories all rose at an outsized pace.
Auto maintenance and repair costs climbed 1% in July and are up 6.5% from last year.
The numbers come as President Trump moves ahead with his full tariff agenda. After pausing most of the summer, Trump signed an executive order on July 31 to put the rest of his tariffs into effect starting Aug. 7.
These tariffs range from 15% to 25% on goods from most major U.S. trading partners. Chinese imports face a 55% baseline tariff under a side deal with Beijing.
Some in the administration say the July CPI shows tariffs aren’t hurting consumers. Joseph Lavorgna, a counselor to Treasury Secretary Scott Bessent, said the data “continues to show no negative impact” from Trump’s trade measures.
Other economists warn it may take months for the full effects to show up. They predict prices could rise further in the remainder of 2025.
Markets responded to the CPI report by increasing bets that the Federal Reserve will cut interest rates in September. According to the CME FedWatch tool, the probability of a quarter-point rate cut jumped from 85.9% to 94.4% after the data was released.