New inflation figures released Tuesday added to signs that President Donald Trump’s tariffs are driving up the cost of everyday goods, even as lower energy prices helped temper overall increases.

The Labor Department’s consumer price index for July showed that the annual pace of inflation remained at 2.7% from July 2024. That’s the same as the annual rise reported in June and above April’s post-pandemic low of 2.3%, though it was just under economists’ expectations.

Core inflation, which excludes volatile food and energy to give a more accurate reading of underlying price pressures, rose 3.1% from a year earlier, hotter than the prior month’s increase and above expectations.

“It’s a meaningful increase in inflation that points to upward pricing pressures across the economy for the remainder of the year,” said Joe Brusuelas, chief economist at RSM.

Annual rates could edge toward 4% by the end of the year, economists say, assuming monthly price pressures continue to firm.

On a monthly basis, prices rose for particular categories exposed to tariffs,such as furniture prices, which increased 0.9%. Tire prices were up 1%.

Tomato prices, influenced by tariffs on Mexican agricultural imports, were up 3.3%. Airfares rose 4%.

But energy prices fell sharply, fueled by a 2.2% decline in gasoline prices. Food prices were unchanged on a monthly basis but still up 2.9% over the past year.

The inflation report came amid upheaval at the Bureau of Labor Statistics, the agency that compiles the consumer price index. Earlier this month, Trump fired its commissioner after the bureau issued large downward revisions to job growth, which Trump claimed — without evidence — were intended to make him look bad.

For much of the spring, inflation data mostly defied concerns that Trump’s tariffs would ignite price increases, surprising analysts who had braced for higher inflation and weaker hiring amid the president’s unpredictable trade moves.

That changed last month, when June data showed broadbased price increases affecting imports such as cosmetics, shoes and toys, as well as services such as medical care, car insurance and education. Vehicle prices and airfares fell, in part because of dampened demand.

While many firms expect to raise prices in response to new tariffs, they have so far leaned on other strategies to blunt the impact. Company earnings and trade data suggest the effective tariff rate — the actual duties paid after accounting for exemptions and sourcing shifts — is running below the headline rates announced by the administration.

Those steps appear to be slowing the pass-through to consumers, economists at Barclays noted this week. Goods inflation is beginning to creep higher, reflecting the initial bite of tariffs, but economists say it is unlikely to produce an explosive jump in upcoming price reports. Instead, the buildup is expected to be more gradual, as corporate stockpiles are depleted and alternative supply chains reach their limits.

“Hence, while goods inflation is definitely starting to show up, we don’t expect a blowout report,” Barclays wrote.

At the same time, fresh revisions to government labor data show that the U.S. economy added far fewer jobs in the second quarter than initially reported, underscoring a loss of momentum in hiring. Measures of business activity from the Institute for Supply Management and S&P Global also point to a slowdown, even as price pressures persist.

Together, the economic data paints a picture of an economy edging into stagflation territory — slowing growth coupled with stubborn inflation — a dynamic that could complicate the Federal Reserve’s path on interest rates over the coming months.

The Fed is in a tricky position, tasked with balancing its dual mandate of maximum employment and stable inflation. Prolonged economic uncertainty appears to have slowed growth and weakened the jobs market, conditions that would normally prompt a rate cut. At the same time, tariffs appear to be reigniting inflationary pressures, potentially justifying higher rates instead. Some economists caution that inflation may take longer to materialize than signs of a cooling economy, adding another layer of complexity to the Fed’s decision-making.

The White House has repeatedly highlighted the monthly data to argue that Trump is beating inflation, while simultaneously calling on the Fed to lower interest rates to boost economic activity. After lowering rates by a full percentage point between September and December, the Fed has left rates unchanged at a range of 4.25% to 4.5%.

The Fed’s dilemma is underscored by new survey data from the Cleveland Fed showing that U.S. business leaders now expect inflation to run at 3.5% over the next year — down from 3.9% just three months ago but still well above the Fed’s target for inflation, which is 2%. The quarterly survey, which polls executives across manufacturing and services, suggests companies see price pressures easing modestly, even as many prepare to pass on tariff costs to customers. Because corporate pricing decisions can directly influence inflation’s trajectory, the data offers a key window into how tariffs might filter through to consumers in the months ahead.

Though there is no consensus on the path forward among the 19 central bank officials who participate in setting interest rates, several top Fed officials have signaled they are gravitating toward rate cuts as early as their next scheduled meeting in September to support a softening labor market. Their remarks generally assume that tariffs will boost inflation in the near term but probably not in a persistent way that would need to be offset by tighter monetary policy.

Mary Daly, who heads the San Francisco Fed, said additional slowing in the labor market would be unwelcome. She suggested that the Fed may need to cut soon, “especially since we know that once the labor market stumbles, it tends to fall quickly and hard.”

“All this means is that we will likely need to adjust policy in the coming months,” Daly said in a speech last week.

U.S. INFLATION

Year-over-year percent change in the consumer price index, seasonally adjusted.

INFLATION RATES

Bimonthly year-over-year percent change in the consumer price index, seasonally adjusted.