Inflation's Unsteady Path: CPI Reports Sparks Debate Amid Tariff Concerns

U.S. consumer prices experienced a moderate increase in July, yet underlying inflation recorded its largest spike in six months, driven by rising service costs such as airline fares, and tariff-sensitive goods. The Bureau of Labor Statistics' mixed report has not altered market expectations regarding the Federal Reserve's anticipated September interest rate cuts.

Economists have raised flags about the future impact of President Trump's sweeping tariffs, noting that businesses are still disposing of merchandise stocked before the implementation of such import duties. Meanwhile, financial markets initially seemed relieved by the data, yet concerns linger over the integrity of inflation data amidst budget and staffing cuts at the BLS.

The BLS has halted data collection in certain areas of the U.S. due to funding issues, spurring questions around data quality. In July, different cell imputation usage in CPI data increased to 35%, presenting new volatility concerns. Erika McEntarfer was dismissed from her role as head of the BLS, and E.J. Antoni, a critic of the agency, was nominated to succeed her.

(With inputs from agencies.)