Inflation Proves Hard to Tame as Tariff Effects Hit U.S. Economy

Inflation is not surging out of control, with the headline number holding steady at 2.7% in July from a year ago.

The annual rate of core goods inflation was 1.2% in July

That stability could give Federal Reserve officials some flexibility to cut interest rates in September if the job market continues to weaken. Core inflation rose 3.1% on an annual basis in July, up from June’s 2.9% pace, Megan Leonhardt reported for Barron’s Daily.

Nationwide economist Oren Klachkin said inflation remains “well-behaved,” as price growth largely met expectations.

While the effects of higher import tariffs are visible in the July Consumer Price Index data, the rate at which they are flowing through to consumers remains manageable — at least for now.

Fitch Ratings chief economist Brian Coulton noted that the annual rate of core goods inflation was 1.2% in July, a notable rebound considering it had been negative as recently as March.

Used car prices, in particular, rose 0.5% in July after several months of decline, gaining nearly 5% annually.

Prices for some products that had risen sharply in May and June, including major appliances, fell in seasonally adjusted terms last month. Specifically, washer and dryer prices fell 2.2%.

Prices for personal care products were flat in July, while apparel prices rose by a muted 0.1%.

Services inflation is also keeping overall inflation above the Fed’s 2% target.

After a couple of months of relatively moderate increases, the gain in services prices accelerated to 0.4% in July from June, for an annual growth rate of 3.6%. Services inflation excluding shelter rose 4% in July from a year earlier.