US inflation held steady as mild tariff hit offset by cheaper gas, food
[August 13, 2025] By
CHRISTOPHER RUGABER
WASHINGTON (AP) — U.S. inflation was unchanged in July as rising prices
for some imported goods were balanced by falling gas and grocery prices,
leaving overall prices modestly higher than a year ago.
Consumer prices rose 2.7% in July from a year earlier, the Labor
Department said Tuesday, the same as the previous month and up from a
post-pandemic low of 2.3% in April. Excluding the volatile food and
energy categories, core prices rose 3.1%, up from 2.9% in June. Both
figures are above the Federal Reserve's 2% target.
The new numbers suggest that slowing rent increases and cheaper gas are
offsetting some impacts of President Donald Trump's sweeping tariffs.
Many businesses are also likely still absorbing much of the cost of the
duties. Tuesday's figures probably reflect some impact from the 10%
universal tariff Trump imposed in April, as well as higher duties on
countries such as China and Canada.
Brian Bethune, an economist at Boston College, said that overall U.S.
tariffs — calculated as the amount of duties paid by U.S. companies
divided by overall imports — has reached 10%, the highest in decades,
and will likely keep rising for months.
“Those cost increases will be passed on to the consumer in some way,
shape, or form,” Bethune said. Some companies could return to “shrinkflation,”
he added, in which they reduce the package size of a good while keeping
the price the same.
And companies that are absorbing tariff costs, which would cut into
their profit margins, are less likely to hire new employees, he said.
The Federal Reserve may now be in a difficult spot.
Hiring slowed sharply in the spring, after Trump announced tariffs in
April. The stalling out of job gains has boosted financial market
expectations for an interest rate cut by the central bank at its next
meeting in September, and some Fed officials have raised concerns about
the health of the job market. A rate cut by the Fed often, but not
always, lowers borrowing costs for mortgages, car loans, and business
loans.
Economists are divided over how Fed officials will read the data in the
coming months. Some argued that the worsening jobs picture will outweigh
lingering inflation concerns and lead the Fed to cut at its next meeting
in September. Yet some say that with core inflation notably above 2% and
rising, the Fed will postpone that decision.
Chair Jerome Powell has warned that worsening inflation could keep the
Fed on the sidelines — a stance that has enraged Trump, who has defied
traditional norms of central bank independence and demanded lower
borrowing costs.
On Tuesday, Trump attacked Powell again for not cutting rates and
suggested he would allow a lawsuit against the Fed to proceed because of
the rising costs of its extensive building renovation. It wasn't clear
what lawsuit he was referring to.
On a monthly basis, prices rose 0.2% in July, down from 0.3% the
previous month, while core prices ticked up 0.3%, a bit faster than the
0.2% in June.
Gas prices fell 2.2% from June to July and have plunged 9.5% from a year
earlier, the government's report said. Grocery prices slipped 0.1% last
month, though they are still 2.2% higher than a year ago.
Tariffs appeared to raise the cost of some imported items: Shoe prices
jumped 1.4% from June to July, though they are still just 0.9% more
expensive than a year ago. The cost of furniture leapt 0.9% in July and
is 3.2% higher than a year earlier.
Coffee costs nearly 15% more than a year earlier, mostly because of
troubled harvests overseas, though steep duties on imports from Brazil
could push those prices higher in the coming months. Nearly all U.S.
coffee is imported.
[to top of second column] |
Federal Reserve Chairman Jerome Powell, speaks during a news
conference following the Federal Open Market Committee meeting,
Wednesday, July 30, 2025, in Washington. (AP Photo/Manuel Balce
Ceneta)
 Tuesday's data arrives at a
highly-charged moment for the Labor Department's Bureau of Labor
Statistics, which collects and publishes the inflation data. Trump
fired Erika McEntarfer, then the head of BLS, after the Aug. 1 jobs
report also showed sharply lower hiring for May and June than had
previously been reported.
The president posted on social media Monday that he has picked E.J.
Antoni, an economist at the conservative Heritage Foundation and a
frequent critic of the jobs report, to replace McEntarfer.
Adding to the turmoil at BLS is a government hiring freeze that has
forced it to cut back on the data it collects for each inflation
report, the agency has said. UBS economist Alan Detmeister estimates
that BLS is now collecting about 18% fewer price quotes for the
inflation report than it did earlier this year. He thinks the report
will produce more volatile results, though averaged out over time,
still reliable.
Smaller companies are trying to avoid raising prices and some have
turned to novel ways of raising funds.
Clothing maker Princess Awesome, which designs matching clothes for
children and adults, has seen its costs jump 15% to 20% because of
the tariffs. The company has joined a lawsuit seeking to block the
duties. Rebecca Melsky, CEO and co-founder of the firm, says it is
prohibitively expensive to make the cotton blend fabrics it uses in
the United States.
For now, the company has instituted a “tip jar” on its website where
it asks customers to help defray the cost of goods.
“We have not across the board raised prices because of the tariffs
-- yet,” she said.
Trump has insisted that overseas manufacturers will pay the tariffs
by reducing their prices to offset the duties. Yet the pre-tariff
prices of imports haven't fallen much since the levies were put in
place.
Economists at Goldman Sachs estimate that foreign manufacturers have
absorbed just 14% of the duties through June, while 22% has been
paid by consumers and 64% by U.S. companies. Yet the economists
expect that by this fall consumers will bear two-thirds of the
burden, while foreign exporters pay a quarter and U.S. companies
handle less than a tenth.
Many large corporations are raising prices, including apparel makers
Ralph Lauren and Under Armour, and eyewear company Warby Parker.
Most of those increases weren't in place for Tuesday's inflation
report.
Consumer products giant Procter & Gamble, maker of Crest toothpaste,
Tide detergent and Charmin toilet paper, said late last month that
it would lift prices in August on about a quarter of its products by
mid-single-digit percentages. Walmart has also raised prices.
And cosmetics maker e.l.f. Beauty, which makes a majority of its
products in China, said on Wednesday that it had raised prices by a
dollar on its entire product assortment as of Aug. 1 because of
tariff costs, the third price hike in its 21-year history.
____
Associated Press Retail Writer Anne D'Innocenzio in New York
contributed to this report.
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