Key U.S. inflation gauge holds mostly steady though core inflation ticks higher

Washers stand on display near the entrance to a Costco warehouse Tuesday, July 8, 2025, in Sheridan, Colo. (AP Photo/David Zalubowski)

WASHINGTON — The Federal Reserve’s preferred inflation gauge mostly held steady last month despite President Donald Trump’s broad-based tariffs, but a measure of underlying inflation increased.

Prices rose 2.6 per cent in July compared with a year ago, the Commerce Department said Friday, the same annual increase as in June. Excluding the volatile food and energy categories, prices rose 2.9 per cent from a year earlier, up from 2.8 per cent in the previous month and the highest since February.

The figures illustrate why many officials at the Federal Reserve have been reluctant to cut their key interest rate. While inflation is much lower than the roughly 7 per cent peak it reached three years ago, it is still running noticeably above the Fed’s 2 per cent target.

Fed Chair Jerome Powell has said the central bank will likely cut its key rate at its meeting next month. But policymakers are expected to proceed cautiously and it’s not clear how many more rate cuts will happen this year.

When the Fed reduces its key rate, it often — though not always — lowers borrowing costs for things like mortgages, car loans, and business borrowing.

Trump has relentlessly pushed Powell and the Fed for lower interest rates since earlier this year, calling Powell “Too Late” and a “moron” and arguing that there is “no inflation.” On Monday he sought to fire Lisa Cook, a member of the Fed’s governing board in an effort to gain greater control over the central bank.

Christopher Rugaber, The Associated Press