Year-over-year inflation held steady in July at 2.7%, but core inflation that strips out food and energy prices, was up 3.1% compared to July of 2024, according to the Consumer Price Index report released Tuesday by the U.S. Bureau of Labor Statistics.
The “core CPI” that removes more volatile food and energy prices is a closely watched by economists and the Federal Reserve because it captures underlying inflation trends. Viewed on a monthly basis, core inflation was up 0.3%, slightly outpacing the overall inflation rate (0.2%) for July in a sign that new federal tariffs are affecting businesses.
The stock market was up following the release of the July data, with investors apparently viewing the slight acceleration in underlying inflation as not significant enough to derail the anticipated interest rate cut next month by the Federal Reserve.
CME’s FedWatch Tool put the odds of a Fed interest rate cut at 94.2% early Tuesday afternoon.
The prices of items in categories that consumers pay the most attention to – food and energy prices – were either stable or declined in July. The index for shelter rose 0.2% in July and was the primary factor in the all-items monthly increase, the BLS said.
The index for food was flat in July, after increasing 0.3% in the previous two months. The overall energy index decreased 1.1% in July, as prices for gasoline, electricity and natural gas all declined.
The 0.3% increase in core inflation (excluding food and energy prices) followed a 0.2% increase in June. The medical care index increased 0.7% over the month following a 0.5% increase in June. Dental services increased 2.6% in July. The index for airline fares increased 4.0% over the month, after declining 0.1% in June. The recreation index increased 0.4% over the month, as did the household furnishings and operations index. The index for used cars and trucks rose 0.5% in July and the index for personal care rose 0.4%. The new vehicles index was unchanged over the month.
Viewed on an annual basis, some indexes with notable increases over a 12-month period were shelter (+3.7%), household furnishings and operations (+3.4%), motor vehicle insurance (+5.3%) and recreation (+2.4%).
