US Inflation July 2025: Consumer Prices Rise 2.7% Annually, Lower Than Expected Amid Tariff Concerns

Author: Zamal Uddin

Washington, D.C. – The US Consumer Price Index (CPI) rose 2.7% year-over-year in July 2025, coming in slightly below economists’ expectations of 2.8%, according to data released by the Bureau of Labor Statistics (BLS) on Tuesday. On a monthly basis, prices increased 0.2%, in line with forecasts.

Core Inflation Holds Steady

Excluding the more volatile food and energy categories, core CPI climbed 0.3% month-over-month and 3.1% year-over-year, matching predictions for the monthly rise but slightly exceeding the annual estimate of 3.0%.
The monthly core increase was the highest since January, while the yearly figure reached its highest since February.

Key Price Drivers in July

Shelter costs: +0.2% (largest contributor to CPI rise)
Food prices: Flat for the month
Energy prices: -1.1% decline
Used cars and trucks: +0.5%
Transportation and medical services: +0.8% each

While tariffs under President Donald Trump’s trade policies were expected to push prices higher, the overall impact was modest. Notable increases appeared in household furnishings and supplies (+0.7%), but categories like apparel (+0.1%) and canned fruits and vegetables (flat) showed little reaction.

Market Reaction and Federal Reserve Outlook

Following the report, stock markets rose sharply while Treasury yields were mixed. Futures pricing now strongly points to a Federal Reserve interest rate cut in September 2025, with traders also raising the probability of another cut in October to 67%, up from 55% the previous day, according to CME Group’s FedWatch Tool.

Economists like Ellen Zentner of Morgan Stanley Wealth Management believe the softer-than-expected inflation will give the Fed room to prioritize labor market weakness over aggressive inflation control.

Political Backdrop and Data Reliability Concerns

The report comes amid political scrutiny of the BLS, with President Trump recently replacing the bureau’s commissioner and nominating critic E.J. Antoni to lead the agency.
Budget cuts and reduced data collection in multiple cities have sparked concerns over CPI accuracy, as some categories now rely on estimated values rather than actual surveys.

Tariff Impact: Short-Term or Long-Term?

Economists remain divided on whether tariff effects will be temporary or persistent. Historically, tariffs cause a one-time price jump, but with Trump’s broad trade measures, some analysts worry about longer-lasting inflationary pressures.

Wages Lag Behind Prices

Inflation-adjusted average hourly earnings rose just 0.1% in July, bringing the annual increase to 1.2%—a sign that real wage growth is still lagging behind inflation.