CPI Data Shows Surprise Inflation Drop Amid Tariff Concerns

US inflation cooled slightly in July, offering a mild surprise for economists who had braced for a higher reading amid ongoing tariff pressures. 

The latest Consumer Price Index (CPI) data showed prices rose 2.7% year-on-year, compared with expectations of 2.8%, according to the July CPI report from the Bureau of Labor Statistics. On a monthly basis, inflation rose 0.2%, matching forecasts.

The CPI tracks the cost of a basket of goods and services that households typically purchase, from food to clothing. While inflation has remained under 3% for much of this year, it is still above the Federal Reserve’s target of 2%. 

The July data, however, suggests that while tariffs are having some impact, other factors, such as lower gasoline prices, are helping to offset price pressures.

Core Inflation Sees Modest Uptick

Consumer Price Index. (Doc. CNBC)

When stripping out volatile food and energy prices, core CPI climbed 3.1% over the past 12 months, the highest in five months and slightly above the 3% forecast. 

The monthly core increase was 0.3%, driven largely by higher shelter and medical care costs. Economists generally view core inflation as a better indicator of long-term price trends.

Read also: Is the US Imposing Tariff on NVIDIA and AMD's China Sale?

Food Prices Remain a Key Pressure Point

Food inflation continues to weigh on households. In July, food prices rose 0.2% from June and 2.9% compared with last year. Grocery prices edged up 0.1% from the previous month, with notable increases in staples such as coffee, which surged 2.6% from June and nearly 15% from last year. 

Ground beef prices rose 2.4% from June and over 11% from July 2024. On the brighter side, egg prices fell 3.4% from June but remain more than 16% higher than a year ago.

Dining out is also becoming more expensive, with restaurant prices up 0.3% from June and 3.9% year-on-year. Fast-food chains like Wendy’s have reported slower customer traffic, particularly among lower-income households, as higher prices prompt many to cut back on eating out.

Read also: Is There a New Tariff Deadline? Analyzing Trump’s Statements

Energy Prices Provide Some Relief

Energy prices helped ease overall inflation pressures. Gasoline costs fell 0.5% from June and are down 9.5% compared with last year. Lower fuel costs have offset some of the price increases seen in tariff-sensitive goods like household furnishings and certain apparel items.

Tariff Impact Still Limited, For Now

The July CPI report indicates that tariff impact on inflation is still modest. While some imported goods such as furniture and shoes saw slight price increases, the broader effect has been muted. 

Economists caution, however, that the full effect of tariffs, especially the new measures affecting goods from more than 60 countries and the European Union, may take time to appear.

Some experts believe tariff-induced price hikes could be temporary, while others warn they may persist into next year. UBS economist Alan Detmeister expects both headline and core CPI to peak in the second quarter of 2026, potentially reaching around 3.7% and 3.8%, respectively.

Read also: What Happens After US Canada Tariff Decision Delay?

Fed Rate Cut Still on the Table

Despite inflation remaining above the 2% target, the cooler-than-expected July reading has strengthened expectations for a Federal Reserve rate cut in September. 

Markets currently see an 88% probability of a cut at the Fed’s September 16–17 meeting. A recent slowdown in hiring also adds to the case for monetary easing.

Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, noted that “these numbers should allow the Fed to focus on labor market weakness and keep a September rate cut on the table.”

With another CPI release and jobs report due before the Fed meets, the next few weeks will be critical in shaping the central bank’s decision.

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FAQ

Is CPI bullish or bearish?

In general, a higher CPI reading is considered bullish (positive) for the US dollar, while a lower CPI reading is considered bearish (negative). This is because a higher-than-expected CPI can lead the Federal Reserve to raise interest rates, making the dollar more attractive to investors.

What is the meaning of CPI?

The Consumer Price Index (CPI) is an economic indicator that tracks inflation. It measures the average change over time in the prices that urban consumers pay for a "market basket" of common goods and services. Essentially, it shows how the cost of living is changing.

What is the current CPI today?

As of July 2025, the US Consumer Price Index is at 322.13. This is an increase of 0.20% from last month and a 2.73% increase from one year ago.

Is higher CPI good or bad?

A rising CPI indicates that inflation is happening, which means the cost of living is going up. While a stable, low level of inflation is often seen as a sign of a healthy economy, a high or rapidly increasing CPI can be bad, as it reduces people's purchasing power and can lead to economic instability.

Does CPI affect Bitcoin?

Yes, the monthly CPI release is a significant factor for cryptocurrency traders. The data influences the strength of the US dollar and, more importantly, investors' willingness to take risks. A higher-than-expected CPI can lead to tighter monetary policy, which might cause investors to move away from riskier assets like Bitcoin. Conversely, a lower-than-expected CPI can signal a stable economic environment, encouraging investment in cryptocurrencies.