Inflation in the United States gained momentum in July 2025, driven by President Donald Trump’s tariffs, which increased the costs of consumer goods such as furniture, appliances, and apparel. The Consumer Price Index (CPI) remained steady at 2.7% compared to the previous year, but core inflation, excluding food and energy, rose 3.1%, marking the highest annual increase in five months. Released by the Bureau of Labor Statistics, the report indicates that businesses are passing tariff-related costs onto consumers, putting pressure on sectors sensitive to import taxes. The tariffs, including a universal 10% levy on imports since April and higher duties on steel, aluminum, and products from countries like China and Canada, have started to reflect in prices. Despite this, the Federal Reserve signals it may cut interest rates in September if inflation does not accelerate beyond expectations. The price increases come amid a slowing job market, with only 73,000 jobs added in July, heightening the Fed’s challenge to balance inflation and unemployment.
The impact of tariffs has been felt in specific categories, notably a 0.7% rise in the household furnishings index and 3.3% in children’s apparel. Airfares also surged 4% in July, reversing recent declines. Meanwhile, energy prices, such as gasoline, fell 2.2%, helping to keep overall inflation stable.
U.S. companies reliant on imports have tried to absorb tariff costs, but many are reaching a breaking point. Earlier this year, some firms stockpiled goods to delay price hikes, but the July report suggests this strategy is waning.
- Key tariff impacts:
- Furniture and appliances: up 0.7% in July.
- Children’s apparel: 3.3% increase last month.
- Airfares: 4% rise after months of declines.
- Used vehicles: 0.5% increase, while new car prices remained flat.
Effects of tariffs on consumer goods prices
Trump’s tariffs, particularly on countries like China, India, and Vietnam, have significantly impacted sectors reliant on imports. In July, prices for goods like furniture, appliances, and clothing saw notable increases. The household furnishings index, for instance, rose 0.7% from June, with a 2.4% annual increase. Apparel and footwear, highly exposed to tariffs, also faced price hikes, with footwear up 1.4%.
Companies in the apparel sector, such as Adidas and Crocs, have warned that higher costs may force further price increases. Some firms have sought alternative suppliers or absorbed costs to remain competitive, but the July data suggests this approach is becoming unsustainable.
However, not all sectors saw immediate increases. Appliance prices, for example, fell 0.9% in July after a 1.9% rise in June, indicating temporary resistance from some retailers to pass on costs. Analysts predict this restraint may not last long.
- Most affected sectors:
- Children’s apparel: 3.3% increase in July.
- Footwear: 1.4% rise last month.
- Furniture and household goods: 0.7% increase.
- Airfares: 4% surge after recent declines.
Job market and Federal Reserve response
Rising inflation coincides with a fragile U.S. economy, as the job market shows signs of weakness. The July jobs report revealed only 73,000 new jobs, far below expectations, with downward revisions of 258,000 jobs for May and June. This slowdown intensifies pressure on the Federal Reserve, which aims to balance inflation control with job stability.
Despite the uptick in core inflation, the Fed appears poised to resume interest rate cuts in September. The steady 2.7% CPI and falling energy prices, like gasoline (-2.2%), suggest inflationary pressure is not widespread. However, rising service prices, such as airfares and medical care, raise concerns due to their persistent nature.
President Trump has openly criticized Fed Chair Jerome Powell for maintaining high interest rates, even suggesting legal action over alleged mismanagement of the Fed’s headquarters renovation. Additionally, Trump’s nomination of Stephen Miran, a Fed critic, to a vacant board seat heightens political tensions around monetary policy.
Impact on consumers and businesses
American consumers are feeling the pinch of tariffs on their budgets. Categories like apparel, furniture, and airfares, which saw significant increases, are essential for many households. Coffee prices, for instance, rose 2.3% in July, affected by the 10% import tariffs and a new 50% levy on Brazilian goods.
Businesses face a dilemma. Many stockpiled products earlier this year to avoid immediate price hikes, but the July report indicates this strategy is running out. Automakers, which have so far shielded new car prices, may soon raise prices due to tariffs of up to 27.5% on vehicles from countries like South Korea and Japan.
- Business strategies:
- Stockpiling goods to delay price increases.
- Seeking alternative suppliers in countries with lower tariffs.
- Absorbing some costs to maintain competitiveness.
- Raising prices as a last resort in sectors like apparel and furniture.
Less impacted sectors and future trends
Not all sectors felt immediate tariff effects. Food prices remained flat in July, with grocery prices down 0.1%. Egg prices dropped 3.9% last month, though they are up 16.4% year-over-year due to earlier bird flu outbreaks. Hotel and car rental prices also fell, by 1.3% and 0.4%, respectively, easing summer travel costs.
Analysts warn, however, that tariff effects may intensify soon. A Goldman Sachs study estimates that by October, 67% of tariff costs will be passed to consumers, up from 22% earlier this year. This could further raise prices for imported goods like electronics, clothing, and cars.
The appointment of E.J. Antoni to lead the Bureau of Labor Statistics, following Erika McEntarfer’s dismissal, raises concerns about the credibility of economic data. Economists fear leadership changes could undermine the independence of statistics, impacting market confidence.
- Expected trends:
- Rising new car prices due to tariffs on imports.
- Gradual cost increases for imported goods like electronics.
- Potential inflationary pressure in services like healthcare and transportation.
- Risk of further job market instability amid economic slowdown.
Government and financial market reactions
The Trump administration defended the inflation figures, with White House spokesperson Karoline Leavitt stating the report exceeded market expectations and reflects the president’s commitment to lowering costs for families and businesses. Stephen Miran, chair of the White House Council of Economic Advisers, denied tariffs as the primary cause of price hikes, arguing no clear correlation exists.
Financial markets reacted moderately. The S&P 500 rose 0.3% early in the day but eased from initial highs. Investors adjusted expectations for interest rate cuts, with futures markets signaling two to three 0.25-point cuts by December. The dollar’s slight decline and subdued bond market suggest the inflation data did not shock investors.
The National Federation of Independent Business’ Small Business Optimism Index rose 14 points to 36% in July, boosted by a Republican domestic policy bill expanding business tax cuts. This optimism may be short-lived as tariffs continue to pressure operating costs.
- Market reactions:
- S&P 500: initial 0.3% rise, but no record high.
- Futures markets: expectations of two to three rate cuts by December.
- Small business optimism index: up 14 points in July.
- Dollar: slight decline against other currencies.