July Inflation Report Expected to Show Rising Prices Due to Trump Tariffs

TLDR

Table of Contents

July CPI expected to show inflation accelerated to 2.8% year-over-year, up from June’s 2.7%
Core CPI projected to rise 0.3% monthly, the strongest gain in six months
Tariff pressures beginning to show in consumer prices, with apparel and furniture costs rising
Markets betting 87% probability of Fed rate cut in September despite inflation concerns
Trump extended China tariff deadline by 90 days to November 9

The July Consumer Price Index report, released Tuesday at 8:30 a.m. ET, is expected to show inflation picked up pace compared to June. Economists forecast headline CPI rose 2.8% year-over-year in July, up from the 2.7% increase recorded in June.

Monthly price increases are expected to moderate slightly to 0.2% in July from June’s 0.3% gain. Lower gasoline prices and softer food inflation are expected to drive this monthly slowdown.

JP Morgan's Trading Gameplan for Tuesday's CPI Release 🚨🚨 pic.twitter.com/DznBYVLBSA
— Barchart (@Barchart) August 11, 2025

Core CPI, which excludes volatile food and energy prices, tells a different story. The annual core inflation rate is forecast to climb to 3.0% from June’s 2.9% reading.

Core prices are projected to rise 0.3% month-over-month in July. This would mark the strongest monthly gain in six months and exceed June’s 0.2% increase.

The inflation data comes as President Trump’s tariffs begin showing up in consumer prices. In June, apparel prices rose 0.4% monthly while footwear jumped 0.7% after months of declines.

Furniture and bedding prices gained 0.4% in June, reversing May’s 0.8% drop. These increases signal that higher import costs are reaching American consumers.

Tariff Impact on Consumer Prices

Wells Fargo economist Sarah House expects the July report to show further signs of tariff-driven price increases. She noted it’s still early in the price adjustment process to see how higher import taxes will be distributed between consumers, domestic sellers, and foreign exporters.

The US effective tariff rate now hovers near 18.6%, the highest level since 1933 according to Yale Budget Lab estimates. Consumer fatigue is making it harder for companies to raise prices in general, House added.

Stock futures opened lower Tuesday morning as investors awaited the inflation data. Dow Jones Industrial Average futures fell 26 points or 0.1%, while S&P 500 and Nasdaq 100 futures also dropped 0.1%.

Federal Reserve Rate Cut Expectations

Despite rising inflation expectations, markets are betting heavily on Federal Reserve rate cuts. Investors place an 87% probability on a 0.25% rate cut at the Fed’s September meeting, up from 57% last month.

Traders expect more than two rate cuts by December. The Fed faces a challenging situation with persistent inflation but concerns about labor market health.

Citi analyst Stuart Kaiser warned that CPI could leave the Fed with “dual headaches.” The central bank had two dissents at its July meeting, showing uncertainty about the path forward.

Mohit Kumar from Jefferies International said the Fed would likely cut rates even with sticky inflation if employment continues to weaken. However, persistent inflation would prevent aggressive easing policies.

Vanguard economists expect firms to gradually pass through tariff-related costs, which should lift core goods prices. They also anticipate firm readings in services excluding shelter and shelter costs.

The 10-year Treasury yield stood at 4.288% early Tuesday, roughly flat from the previous day. Gold prices fell 0.2% to just under $3,400 an ounce after Trump clarified no tariffs would be imposed on gold imports.

President Trump signed an executive order Monday extending the deadline for higher China tariffs until November 9. The tariffs were originally set to increase Tuesday but now have a 90-day extension.

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