The Bureau of Labor Statistics reported that the annual headline inflation rate in the US was unchanged in July, while the annual core inflation rate accelerated. The US inflation rate has come down substantially over the past few years, but it persists at relatively elevated levels. The US Federal Reserve Board (Fed) targets inflation of 2%. The data puts the Fed in a difficult spot as the labour market has shown signs of weakening in recent months, but inflation remains stubbornly high, with the threat of tariffs adding to inflationary pressures.

• The annual headline inflation rate in the US was 2.7% in July, unchanged from the previous month. July’s rate was below the 2.8% economists had expected, based on a Bloomberg survey. On a monthly basis, consumer prices rose by 0.2%, matching expectations.
• The price growth for used cars and trucks and transportation services accelerated in July compared to June. This growth was largely offset by a decline in energy costs and a slowdown in shelter prices.
• The annual core inflation rate, which excludes more volatile items, increased to 3.1% in July, which was its highest level since February. The main driver of higher core prices was a pickup in services costs, particularly for medical care and recreation.
• With headline inflation below estimates, expectations rose that the Fed might be closing in on a rate cut. The labour market has been slowing in recent months. However, elevated core inflationary pressures and concerns about the impact of tariffs on prices might weigh on the Fed’s decision.

The report showed that inflation remains relatively elevated in the US, despite coming down significantly over the past few years. New tariffs went into effect in August, posing some upside risk to inflation over the months to come. The Fed makes its next interest-rate decision on September 17. Canada’s own inflation rate for July will be announced next week.

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