The Federal Reserve’s preferred inflation measure held steady last month despite President Donald Trump’s massive tariffs, but core inflation measures showed an increase.
Prices rose 2.6% in July from a year earlier, the Commerce Department said on Friday, the same as the annual rate in June. Excluding the volatile food and energy categories, prices rose 2.9% from a year ago, up from 2.8% the previous month and the highest since February.
The figures illustrate why many officials at the Federal Reserve remain reluctant to cut their key interest rate. While inflation is well below its peak of around 7% three years ago, it is still well above the Fed’s 2% target.
On a monthly basis, consumer prices rose 0.2% from June to July, down from 0.3% the previous month, while core prices rose 0.3% for the second straight month.
The report on Friday also showed that consumer spending rose 0.5% in July, the biggest gain since March and a sign that many Americans are still spending despite high interest rates and uncertainty about the direction of the economy. Spending surged especially on durable goods such as cars, appliances and furniture, many of which are imported.
Incomes rose 0.4% from June to July, driven by strong wage and salary growth, the report said.
Fed Chairman Jerome Powell said the central bank is likely to cut interest rates at its meeting next month. But policymakers are expected to be cautious and it is unclear how many more rate cuts will be made this year.
Trump, on the other hand, has been pressing Powell and the Fed to cut interest rates since the beginning of the year, even calling Powell “too slow” and arguing that “there is no inflation.” On Monday, he also tried to fire Lisa Cook, a member of the Fed’s board of governors, in his bid to control the central bank.
