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July inflation data showed modest tariff impacts and rising producer costs, but overall price pressures stayed contained, allowing the Fed to keep a door open for a September rate cut.

What Caught Our Eyes This Week

Inflation Isn’t Great, But It’s Likely Good Enough for Now

Last week’s package of inflation data showed us that tariff impacts are indeed creeping their way into official statistics but not in a way that drastically alters the broader picture for price pressures. Core goods prices (which exclude food and energy and account for about 19% of the Consumer Price Index [CPI] basket) were up 0.2% in July and are now up 1.1% year over year, above the 21st century average of 0.6%. Meanwhile, shelter inflation, which carries almost twice the weight of core goods at 35%, continues along a steady disinflationary trend, down to 3.7% year over year. Many of the most notable changes in this month’s CPI report were on the services ex-shelter side, with big pops from medical care and recreation, but tame wage inflation and increasing productivity should contain services prices going forward.

The Producer Price Index (PPI)—which measures prices from the perspective of domestic producers rather than consumers—saw a decent pop, up 0.9% in July. Unlike CPI, PPI doesn’t include imported goods, but it might be giving us hints that U.S. businesses are feeling a pinch from their own input costs and are hitting their limits in the ability to eat tariffs (PPI for final demand trade services was up 2% for the month, which could mean that retailers are starting to raise prices to protect their margins and offset tariff costs). All in all, the week’s data tells us that while inflation remains a live issue, it is contained enough for a potential rate cut in September.

CHART OF THE WEEK: Source: Cerity Partners, FRED, as of 8/18/2025.

Past performance does not guarantee future results.

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