July's inflation report, due Tuesday at 8:30 a.m. ET, is likely to confirm that Donald Trump's trade tariffs are beginning to ripple across more categories in the consumer basket. That shift could create another obstacle for the Federal Reserve as it weighs the timing of interest rate cuts.
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July Inflation Preview: Tariffs Showdown Begins
Wall Street economists expect the Consumer Price Index to rise for a third straight month.
The consensus view is for annual CPI to print at 2.9%, above June’s 2.8% and matching the highest level since February.
On a monthly basis, prices are projected to rise by 0.2%, which is slightly below the 0.3% increase observed in June. Much of the increase is expected to come from retailers passing along higher import duties, especially in household furnishings and recreational goods.
Excluding food and energy, core inflation is expected to accelerate. Economists forecast a 0.3% monthly gain in core CPI, the largest in six months, up from 0.2% in June. The annual core rate is projected to tick up from 2.9% to 3%.
Core inflation, which excludes food and energy, is projected to edge up to 3% from 2.9% in June, with the monthly core CPI expected to increase 0.3%, its sharpest rise in six months, after 0.2% previously.
Economists See Broader Price Pressures In July
"It seems likely that inflation will advance further over June's rate of 2.7% as the consequences of Trump's ‘Liberation Day' tariffs become inescapable," Richard Potts, economist at Bondford, said in an emailed comment.
He added that a growing number of companies have "exhausted the cheaper stockpiles of imported goods that they had built up in advance of April's tariff hikes" and will now "have little option but to pass on the new cost of these tariffs to consumers."
Stephen Juneau, economist at Bank of America, expects core goods prices to rise 0.3% month-on-month in July, faster than in June.
"Tariffs should continue to put upward pressure on prices," he said, highlighting a 1.2% surge in apparel prices as a leading driver, even as both new and used vehicle prices are projected to decline again.
Jessica Rindels at Goldman Sachs sees four key trends shaping the July data.
She forecasts a 0.75% rebound in used car prices due to higher auction prices, a 0.2% decline in new car prices resulting from stronger dealer incentives, a 0.1% decrease in car insurance premiums, and a 2% increase in airfares.
Rindel also expects monthly core CPI to remain between 0.3% and 0.4% in the coming months due to tariff effects, even as underlying inflation trends lower. Goldman expects the year-end core CPI to be 3.3%.
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