US July Inflation Mixed: Headline Slightly Softer, Core CPI Hits 2025 High

US July Inflation: Headline Slightly Below Forecasts, Core CPI Climbs to 2025 High

Core CPI surprises to the upside amid strong services inflation
The latest US inflation figures released for July presented a mixed picture. The headline Consumer Price Index (CPI) rose by 0.2% month-over-month (MoM) and 2.7% year-over-year (YoY), just shy of the expected 2.8% YoY, according to Bloomberg estimates. In contrast, core CPI — which excludes food and energy — came in at 0.3% MoM and 3.1% YoY, slightly above the 3.0% forecast, marking the highest core inflation reading since February.

Shelter and services drive CPI higher, goods remain weak
The main driver behind the rise in inflation was reaccelerating services prices, particularly within the shelter category. Meanwhile, inflation from goods remained subdued, and food and energy prices continued to exert downward pressure on the headline figure. Despite concerns around tariffs, goods impacted by recent trade tensions showed only modest increases, suggesting limited pass-through effects — for now.

Forecasts steady, but risks skewed to the downside
Economists maintain their 2025 US inflation forecasts at 3.6% for headline CPI and 3.8% for core CPI, although they note potential for downward revisions if the long pause in new tariffs persists and consumer demand weakens further. Labor market softness could also contribute to decelerating price pressures in the coming months.

Market impact and Fed outlook
While core inflation strength could temper aggressive rate-cut expectations from the Federal Reserve, markets are still betting heavily on a September cut. The Fed now faces a nuanced environment: inflation is not out of control, but persistent services inflation could complicate the timing of future easing.