Customers shop at a Walmart store in Secaucus, New Jersey, on Wednesday, May 16, 2018.
Timothy Fadek | Bloomberg | Getty Images
U.S. consumer prices rose broadly in July, but the increase in inflation will likely do little to change expectations that the Federal Reserve will cut interest rates again next month amid worsening trade tensions.
The Labor Department said on Tuesday its consumer price index increased 0.3% last month, lifted by gains in the cost of energy products and a range of other goods. The CPI had edged up 0.1% for two straight months. In the 12 months through July, the CPI increased 1.8% after advancing 1.6% in June.
Economists polled by Reuters had forecast the CPI would accelerate 0.3% in July and rise 1.7% on a year-on-year basis.
Excluding the volatile food and energy components, the CPI gained 0.3% after rising by the same margin in June. The so-called core CPI was boosted by increases in prices for apparel, airline tickets, healthcare and household furnishings.
In the 12 months through July, the core CPI climbed 2.2% after rising 2.1% in June.
The Fed, which has a 2% inflation target, tracks the core personal consumption expenditures (PCE) price index for monetary policy. The core PCE price index rose 1.6 percent on a year-on-year basis in June and has undershot its target this year.
Financial markets have fully priced in a rate cut at the U.S. central bank’s Sept. 17-18 policy meeting following a recent escalation in the bruising trade war between the United States and China, which led to an inversion of the U.S. Treasury yield curve and raised the risk of a recession.
Worries about the impact of the trade tensions on the U.S. economic expansion, the longest in history, prompted the Fed to cut its short-term lending rate last month for the first time since 2008.
Inflation has remained moderate despite the White House’s tariffs on Chinese imports as the duties have been largely on capital goods. That could change after President Donald Trump announced last month an additional 10% tariff on $300 billion worth of Chinese imports starting Sept. 1.
The new tariffs would affect mostly consumer goods. Goldman Sachs estimates that tariffs have boosted year-on-year core PCE inflation by 10-15 basis points so far and that the new duties will add another 20 basis points.
In July, gasoline prices rebounded 2.5% after dropping 3.6% in June. Electricity rose 0.6%. Food prices were unchanged for a second straight month. Food consumed at home slipped 0.1%.
Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, rose 0.2% in July, the smallest gain since December 2018. Rents had risen by 0.3% for six straight months.
Healthcare costs jumped 0.5% after advancing 0.3% in June.
Apparel prices rose 0.4% after surging 1.1% in June. Used motor vehicles and trucks prices increased 0.9% in July after rebounding 1.6% in the prior month. Prices for new motor vehicles fell 0.2%. The cost of household furnishings and operations increased 0.4%, rising for a third straight month.