U.S. annual inflation rose to 2.7% in July, up 0.2 percentage points from June, the Bureau of Labor Statistics reported.
Core inflation, which excludes volatile food and energy prices, increased 0.3% month over month and reached 3.1% year over year. Both measures were broadly in line with consensus forecasts.
The monthly uptick in headline inflation was driven by higher shelter costs (+0.2%) and non-energy services (+0.4%). The food index was unchanged, with food away from home up 0.3% and food at home down 0.1%, according to the BLS.
Service prices rose across several categories, including medical care (+0.8%) and other personal services (+0.6%). Travel costs jumped 0.7%, ending a five-month decline.
In contrast, energy costs fell 1.1% in July, with gasoline prices down 2.2% and energy commodities slipping 1.9%.
“Services inflation really drove the price increases last month, while goods and commodity inflation remained more subdued than anticipated,” BMO’s Scott Anderson wrote in a research note. “This suggests many businesses remain reluctant to fully pass-along tariff increases for fear of losing sales to a more cautious consumer.”
Core inflation gains, labour softness keep multiple cuts on the table
With more tariff passthrough expected, weak labour data—including downward revisions for May and June—and rising core inflation, economists see a complicated path ahead for the Fed through year-end.
TD’s Thomas Feltmate says the Fed should lean on its employment mandate to provide relief, noting current rates remain in “restrictive territory.” He expects multiple cuts by year-end.
“We see three quarter-point cuts by year-end, bringing the policy rate down to 3.75%,” he noted.
With core inflation rising 0.2% month over month, CIBC’s Avery Shenfeld says the data adds support for a September rate cut. Anderson agrees, provided the U.S. job market continues to soften in the coming month.
While the U.S. rate isn’t expected to change until the fall, this morning’s inflation data moved Canadian bond yields, which influence fixed mortgage rates.
The Canadian 5-year bond yield fell to 2.92% before rebounding to 2.95%, while the 10-year rose to 3.37% following an initial drop.
In the U.S., the 10-year Treasury yield rose four basis points to 4.31%.
Visited 66 times, 66 visit(s) today
Avery Shenfeld brett Surbey CPI Dashboard economic data economic indicators Editor’s pick federal reserve Scott Anderson Thomas Feltmate US fed US inflation
Last modified: August 12, 2025