US inflation held pat in July, too, even with the inflationary shoulder-shock that import tariffs have caused folded in—suggesting a troublingly mixed economic picture. The overall consumer price index rose 2.7% year-over-year, the same annual rate as in June. Even with tariffs ranging from 10% to 50% on nearly all goods coming into the country, a stabilization is taking place. This reality has dire consequences across all sectors.
In July, it was falling energy costs that worked wonders to lower rising prices. This was particularly painful for critical supplies, including coffee, tomatoes, and pontoon tools. Certain areas experienced notable price rises. Airfare was up 4% on the year, dental services up 2.6%. Apparel prices showed little gain, increasing only 0.1% on the month, pointing to further cooling since June.
In July, core inflation jumped by 3.1%. Excluding the volatile prices of food and energy, this increase is the fastest rate we’ve seen in six months. This one figure underscores the inflationary underlying pressures that remain entrenched in our economy even as we operate in a tariff-ridden world. In 2023, the average tariff rate in the US has surged to a strikingly high level of 20.1 percent. Since April, there has been a 10% minimum tax on most goods. Particularly, some goods, especially automobiles, are subject to even greater tariffs.
This has Seema Shah, the chief global strategist at Principal Asset Management watching economic signals like a hawk. She’s counting on the Federal Reserve to start reducing borrowing costs in September in response. This dovetails well with market expectations set against the backdrop of persistent labor-market churn.
Ellen Zentner, chief US economist at Morgan Stanley, provided insight into the current situation:
“In the short-term, markets will likely embrace these numbers because they should allow the Fed to focus on labor-market weakness and keep a September rate cut on the table.”
President Donald Trump has weighed in on the Federal Reserve’s potential actions, emphasizing urgency:
“Longer-term, we likely haven’t seen the end of rising prices as tariffs continue to work their way through the economy.”
While some categories of imports have been exempted from tariffs, including most goods from Canada and Mexico and certain items like oil and smartphones, the overall economic climate remains challenging. Far and away the biggest market dynamic at play are tariffs. Analysts and economic forecasters will need to closely watch how these changes impact consumer spending and overall economic stability in the months ahead.
“Jerome ‘Too Late’ Powell must NOW lower the rate.”
While some categories of imports have been exempted from tariffs, including most goods from Canada and Mexico and certain items like oil and smartphones, the overall economic climate remains challenging. As tariffs continue to influence market dynamics, analysts will closely monitor how these trends affect consumer behavior and broader economic stability in the coming months.