Econotics

Key Takeaways

U.S. Inflation Rises in July Amid Tariff Pressures. Core Inflation Hits Highest Level Since February 2025, reflecting the ongoing effects of President Trump’s tariffs

U.S. Inflation Rises in July Amid Tariff Pressures

U.S. Inflation Rises in July Amid Tariff Pressures

Core Inflation Hits Highest Level Since February 2025

July saw U.S. inflation tick upward, reflecting the ongoing effects of President Trump’s tariffs on imports. The Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures (PCE) price index, shows that core inflation — which excludes volatile food and energy prices — ran at a 2.9% annualized rate, the highest since February 2025. On a monthly basis, core PCE rose 0.3%, consistent with market expectations.

Core vs. All-Items PCE Inflation (July 2025)
Measure	Monthly Change	Annual Change
Core PCE (Ex-Food/Energy)	0.3%	2.9%
All-Items PCE	0.2%	2.6%

Food and Energy Prices Show Mixed Trends

The broader all-items PCE index, which includes food and energy, increased 2.6% year-over-year, with a 0.2% monthly gain. Energy prices declined, falling 1.1% month-over-month and 2.7% annually, while food prices rose modestly by 0.1% monthly and 1.9% annually.

Inflation Drivers (Monthly & Annual Changes)
Category	Monthly Change	Annual Change
Energy	-1.1%	-2.7%
Food	0.1%	1.9%
Services	0.3%	3.6%
Goods	0.0%	0.5%

Consumer Spending and Income Remain Resilient

Consumer spending showed resilience despite higher prices, increasing 0.5% in July, while personal income rose 0.4%. These figures indicate that households continue to spend even as inflation climbs, supporting ongoing economic growth.

Chart suggestion: Dual-axis line chart comparing monthly consumer spending and personal income growth.

Federal Reserve Policy and Inflation Target

The Federal Reserve targets 2% inflation over the long term and uses the PCE index as its primary gauge. Core inflation remains above this threshold, but not excessively, leaving policymakers in a balancing act: weighing persistent inflation against potential labor-market weakness. Markets currently expect the Fed to consider a rate cut in September, especially if employment data signals a slowdown.

Tariffs Contribute to Price Dynamics

Since April, the administration has imposed a baseline 10% tariff on all imports, along with reciprocal tariffs on several trading partners and duties on individual goods. Analysts note that these measures are starting to filter through the economy, contributing to higher prices for certain services and goods.

Econotics Takeaway

Core inflation is rising but remains moderate.
Services are the main driver, while goods and energy are largely stable.
Consumer spending and income remain strong, showing economic resilience.
The Fed is likely to consider policy adjustments, with labor-market trends playing a crucial role.