US Core Inflation Hits Fastest Pace Since January
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Underlying U.S. inflation accelerated in July to the strongest pace since the start of the year, though a tepid rise in goods prices tempered concerns about tariff-driven price pressures.
The core consumer price index, excluding the often volatile food and energy categories, increased 0.3% from June, out Aug. 12. That was in line with economists’ forecasts. On an annual basis, it picked up to 3.1%.
Markets initially took the numbers in stride with Treasuries and S&P 500 futures rallying, though they later pared some of those gains. Still, traders increasingly bet that the Federal Reserve will cut interest rates next month.
The pickup in the core CPI was fueled by services prices. Excluding energy, they climbed the most since the start of the year. Airfares jumped by the most in three years, while medical care and recreation also advanced.
Goods prices, excluding food and energy commodities, rose at a tame pace. Some categories exposed to tariffs, such as toys, sporting goods and household furnishings and supplies, continued to increase, albeit at a slower pace than the prior month.
The reacceleration in services costs, after months of more subdued prints, underscores the lingering difficulties in taming inflation. Economists and policymakers have been largely concerned about goods prices given President Donald Trump’s sweeping tariffs, but consumer demand risks augmenting services inflation.
A sustained pickup in services prices would pose an additional challenge to Fed policymakers as they debate whether tariffs will lead to more enduring inflationary pressure in merchandise. Officials have left rates unchanged this year as they seek more conviction as to how tariffs will impact inflation — defying repeated calls from Trump to cut.
Services Costs
One of the key drivers of inflation in recent years has been housing costs — the largest category within services. Shelter prices rose 0.2% for a second month, reflecting steady housing costs and a continued decline in prices of hotel stays.
Another services gauge closely tracked by the Fed, which strips out housing and energy costs, climbed 0.5%, one of the strongest paces since the start of 2024. While central bankers have stressed the importance of looking at such a metric when assessing the overall inflation trajectory, they compute it based on a separate index.
That measure — known as the personal consumption expenditures price index — doesn’t put as much weight on shelter as the CPI. A government report on producer prices due Thursday will offer insights on additional categories that feed directly into the PCE, which is scheduled for later this month.
After months of chaotic threats and reversals, higher rates forÌýalmost all countriesÌýbegan last week. That may keep pressure on inflation readings going forward, even as Trump continues toÌýnegotiateÌýwith some major trading partners like China.
Some companies have been holding off on price increases for fear that consumers will pull back on spending, which will heighten interest for Aug. 15 reports on retail sales and consumer sentiment.Ìý
Central bankers also pay close attention to wage growth because it can help inform expectations for consumer spending — the main engine of the economy. A separate report Aug. 12 that combines the inflation figures with recent wage data showed that real average hourly earnings climbed 1.4% from the year before, rebounding from June.
The report was issued after Trump named EJ Antoni, chief economist of the conservative Heritage Foundation, toÌýleadÌýthe BLS after firing the former head of the agency earlier this month. Antoni has been vocal about his concerns with BLS jobs data and revisions, and the president has accused the agency, without evidence, of rigging the numbers.
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