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% in July compared with a year ago, the Commerce Department said Friday, the same annual increase as in June. Excluding volatile food and energy categories, prices rose 2.9% from a year earlier, up from 2.8% the previous month and the highest since February.
The figures illustrate why many Federal Reserve officials have been reluctant to cut their key interest rate. While inflation is far below the roughly 7% peak reached three years ago, it remains above the Fed’s 2% target.
On a monthly basis, consumer prices rose 0.2% from June to July, down from 0.3% the previous month, while core prices increased 0.3% for the second straight month.
Separately, the report showed consumer spending jumped 0.5% in July, the biggest increase since March and a sign many Americans are still willing to spend despite high interest rates and uncertainty about the economy. Spending rose sharply on long-lasting goods such as cars, appliances and furniture, many of which are imported.
Incomes rose 0.4% from June to July, boosted by gains in wages and salaries, the report showed.
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 is unclear 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 mortgages, car loans and business borrowing.
Trump has repeatedly pushed Powell and the Fed for lower interest rates since earlier this year, calling Powell “Too Late” and a “moron” and arguing 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.