Inflation in the United States ticked higher in July 2025, as the latest Consumer Price Index (CPI) data revealed the complex pressures facing American households and policymakers alike. The Bureau of Labor Statistics reported on August 12 that consumer prices rose 0.2% from June, a figure held in check by a 2.2% monthly drop in gasoline prices. Year-over-year, the CPI advanced by 2.7%, signaling persistent price pressures that are proving stubbornly resistant to policymakers’ efforts.
But the real story, according to both Real Economy and The New York Times, lies beneath the surface. Core inflation—which excludes the more volatile food and energy categories—rose by 0.3% in July and 3.1% over the past year, marking the fastest annual pace in five months. That uptick has economists and Federal Reserve officials alike watching closely, as it reflects both the direct and indirect effects of President Trump’s escalating tariffs and the broader challenges of keeping inflation in check while the labor market shows signs of softening.
Tariffs, which have been a central feature of the Trump administration’s economic agenda, are now showing up in the hard data. Core goods prices, influenced by these trade policies, increased by 1.2% year-over-year. Businesses have been forced to make tough choices: absorb higher import costs and accept thinner margins, or pass those costs on to consumers. According to Real Economy, “Given that rising import costs imply that exporters are not materially absorbing those costs, it strongly suggests that thinner margins and rising inflation lie ahead.”
Indeed, the July data showed more businesses reaching a tipping point. After months of stockpiling goods to get ahead of looming tariffs, companies are now left with little option but to raise prices. The impact has been especially acute in categories like furniture, appliances, household wares, and recreation goods. The broader household furnishings index rose 0.7% in July, following a 1% jump in June, and is up 2.4% from last year. Recreation-related prices climbed 0.4%, while apparel and footwear—particularly sensitive to global tariffs—also posted notable gains. Prices on infants’ and toddlers’ apparel rose 3.3% in July, and footwear was up 1.4%.
Consumers are feeling the pinch at the grocery store as well. Coffee prices jumped 2.3% in July and a staggering 14.8% over the past year. Beef and veal prices rose 1.5% month-over-month and 11.3% annually. Tomatoes saw a 3.3% surge in July, a change attributed almost exclusively to trade taxes on Mexican agricultural imports. “The cost of guacamole is about to rise notably,” Real Economy quipped, capturing the ripple effect of tariffs on everyday staples.
While energy prices provided some relief—dropping 1.1% in July, with gasoline leading the decline—other sectors saw steady or rising costs. Services, excluding energy, advanced by 0.4% for the month and 3.6% year-over-year. Housing and shelter costs increased by 0.2% monthly, with the owners’ equivalent rent series rising 0.3%. Used car and truck prices jumped by 0.5% for the month, and are up 4.8% compared to last year. With new cars averaging nearly $49,000, according to Cox Automotive, more buyers are turning to the used market, which is pushing those prices even higher.
Airfares, after several months of declines, surged by 4% in July. Medical care costs rose by 0.7%, and recreation increased by 0.4%. Apparel ticked up by 0.1%, while food and beverage costs were flat. Not every category saw increases—egg prices, for example, fell 3.9% in July after a 7.4% decline in June, though they remain 16.4% higher than a year ago, largely due to earlier bird flu outbreaks.
For policymakers at the Federal Reserve, the July inflation report presents a tricky balancing act. The central bank is charged with maintaining price stability and promoting maximum sustainable employment. Yet, as The New York Times noted, the latest jobs report showed just 73,000 jobs added in July, with significant downward revisions to previous months. The tension between rising inflation and a weakening labor market is palpable, especially as the Fed heads into a critical policy meeting in September.
President Trump has not shied away from weighing in, both on monetary policy and on the agencies responsible for economic data. He has criticized Federal Reserve Chair Jerome Powell for not lowering interest rates, calling for immediate cuts and even threatening a lawsuit over a costly renovation at the Fed’s headquarters. Trump also recently appointed Stephen Miran, a critic of the Fed and former chair of the White House Council of Economic Advisers, as a temporary governor nominee to the central bank’s Board of Governors. Miran, for his part, has argued that there is “no evidence whatsoever” that tariffs have caused a spike in prices, insisting, “It just hasn’t panned out.” Nevertheless, the data shows that price increases are concentrated in tariff-sensitive categories, and more businesses are passing those costs to consumers.
The president’s interventions have not been limited to the Fed. After a weaker-than-expected jobs report, Trump replaced the head of the Bureau of Labor Statistics, raising concerns among economists about the independence and reliability of federal economic data. On Monday, he nominated E.J. Antoni, an economist known for his criticism of the BLS, to lead the agency.
Market reactions to the inflation data were mixed but generally muted. The S&P 500 initially flirted with a record high, up 0.3%, before easing back as trading settled. Bond markets remained subdued, and the dollar index edged lower. Investors, who had been nervous about a possible inflation spike, took some comfort from the fact that the July numbers were largely in line with expectations. "Today’s numbers delivered a mild relief rally,” said Gina Bolvin, president of Bolvin Wealth Management Group. “But with tariffs in play, investors should enjoy the calm while keeping an eye on the horizon.”
Looking ahead, the effective tariff rate is set to rise sharply—from 9.14% to 17.6% by early October. That has business leaders and economists bracing for further margin compression and higher consumer prices. The Federal Reserve, for its part, is forecasted to implement just one 25 basis-point rate cut at its December meeting, pending further developments in the labor market and inflation data. As James Egelhof, chief U.S. economist with BNP Paribas, put it: “The surprise here was compositional, in that we saw a bit more heat in services and a bit less heat in goods. Which one of these is good news for the Fed is not clear.”
With inflation proving sticky and the labor market softening, all eyes will be on the Fed’s next moves and the evolving impact of tariffs on American wallets. The coming months promise more debate—and more tough choices for policymakers, businesses, and consumers alike.
