Key US inflation gauge holds mostly steady though core inflation ticks
higher
[August 30, 2025] By
CHRISTOPHER RUGABER
WASHINGTON (AP) — The Federal Reserve’s preferred inflation gauge mostly
held steady last month despite President Donald Trump’s broad-based
tariffs, but a measure of underlying inflation increased.
Prices rose 2.6% in July compared with a year ago, the Commerce
Department said Friday, the same annual increase as in June. Excluding
the volatile food and energy categories, prices rose 2.9% from a year
earlier, up from 2.8% in the previous month and the highest since
February.
The figures illustrate why many officials at the Federal Reserve have
been reluctant to cut their key interest rate. While inflation is much
lower than the roughly 7% peak it reached three years ago, it is still
running noticeably above the Fed’s 2% target.
At the same time, the report showed that consumer spending picked up
last month and could boost economic growth, which weakened considerably
in the first six months of the year.
On a monthly basis, consumer prices rose 0.2% from June to July, down
from 0.3% the previous month, while core prices increased 0.3% for the
second month in a row.
The figures are similar to those reported earlier this month in the more
widely-followed consumer price index, which has risen 2.7% from a year
ago. The core CPI increased 3.1% in July compared with a year earlier.
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 Separately, the Friday report showed
that consumer spending jumped 0.5% in July, the biggest increase
since March and a sign that many Americans are still willing to open
their wallets despite high interest rates and uncertainty
surrounding the direction of the economy. Spending jumped sharply
for long-lasting goods such as cars, appliances and furniture, many
of which are imported.
Incomes rose 0.4% from June to July, boosted by a
healthy gain in wages and salaries, the report showed.
Fed Chair Jerome Powell has said the central bank will likely cut
its key rate at its meeting next month. But policymakers are
expected to proceed cautiously and it’s not clear how many more rate
cuts will happen this year.
When the Fed reduces its key rate, it often — though not always —
lowers borrowing costs for things like mortgages, car loans, and
business borrowing.
Trump has relentlessly pushed Powell and the Fed for lower interest
rates since earlier this year, calling Powell “Too Late” and a
“moron” and arguing that there is “no inflation.” On Monday he
sought to fire Lisa Cook, a member of the Fed’s governing board in
an effort to gain greater control over the central bank.
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