Inflation remains elevated as Trump’s tariffs take hold

Inflation continued to dog shoppers last month, as consumers were forced to shoulder more of the cost of President Trump’s tariffs.

Consumer prices in July were up 2.7% from a year ago, according to a report Tuesday from the Labor Department. The annual increase was similar to the month before.

Rising prices on imported items such as toys and furniture contributed to the higher cost of living. That was partially offset by a sharp drop in the price of gasoline.

Stripping out volatile food and energy prices, “core” inflation for the 12 months ending in July was 3.1%. That’s up from 2.9% for the 12 months ending in June.

Consumers will likely continue paying more

Since April, Trump has imposed tariffs of 10%-30% on nearly everything the U.S. imports. Taxes on goods from many countries are ratcheting even higher this month as the average tariff rate now tops 18%.

Importers have absorbed some of that cost or negotiated price breaks with their foreign suppliers. But with the government collecting tens of billions of dollars a month in tariffs, consumers are sure to see higher prices.

The only questions are: How much higher and for how long?

Federal Reserve Governor Chris Waller has argued that tariffs will cause a one-time jump in prices, but won’t continue to fuel inflation month after month. Fed Chairman Jerome Powell says while that’s a reasonable expectation, the central bank must guard against the risk that inflation proves more persistent.

The Fed held interest rates steady at its last policy meeting in July. But amid signs of weakness in the labor market, investors are betting the Fed will lower its benchmark rate by a quarter-percentage point when policymakers meet next month.