U.S. Consumer Price Index (July 2025)

Core inflation gathers further momentum in July  

• The Consumer Price Index (CPI) rose 0.2% in July, in line with the consensus forecast in Bloomberg and a tick lower than June. On a twelve-month basis, CPI was up 2.7% (unchanged from the month prior). 
  
  • Energy costs (-1.1% m/m) more than reversed June's gain, while food prices were flat on the month as a gain in 'food away from home' (+0.3% m/m) was offset by a decline in 'food at home' (-0.1% m/m). On a year-ago basis, food prices were up 2.9%. 
• Excluding food and energy, core inflation rose 0.3% m/m – also in line with consensus forecast – and a tick faster than the month prior. The twelve-month change edged higher to 3.1% (from 2.9% in June).
• Services prices rose 0.4% m/m, up from June's 0.3% m/m. Primary shelter costs rose 0.3% m/m, while price growth for non-housing services were up 0.5% m/m – its strongest monthly gain since January. 
  
  • There was considerable breadth underpinning the uptick in non-housing services. Travel costs (+0.7% m/m) turned higher after five consecutive months of declines. This was due to a sharp rebound in airfares (+4.0% m/m) which more than offset declines in car rentals (-2.9% m/m) and a further pullback in hotel costs (-1.0% m/m). Meanwhile, price growth for recreational (+0.4% m/m), medical (+0.8% m/m) and other personal services (+0.6% m/m) also heated up. 
• Core goods prices rose 0.2% m/m, led by continued strength in home furnishings (+0.7% m/m), while most other goods categories saw more mild gains.

Key Implications

• Core inflation gathered further momentum in July, rising by its fastest monthly pace since January and pushing the year-on-year measure back above 3%. Tariff passthrough continued to pressure goods prices higher with the breadth of categories now seeing price gains over the last three-months rising to 64% or the highest level since April 2023. But unlike prior months, firming goods prices were not offset by cooling services. This trend is likely to continue through year-end, keeping sustained upward pressure on core measures of inflation. 
• Policymakers will face some tough choices over the coming months. While inflationary pressures are heating up, the labor market has shown clear signs of weakening. With the policy rate still well in restrictive territory and inflation expectations remaining well anchored, the prudent move for the Fed is to prioritize the employment side of its dual mandate and provide some rate relief in the months ahead. We see three quarter-point cuts by year-end, bringing the policy rate down to 3.75%. 

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