US CPI: Inflation for July Defies Consensus Calls with Not-That-Scary 2.7% Growth

Prices still rose, yes, but they did it at a slower-than-expected clip. The news sent stock futures higher and the US dollar lower — rate cuts coming?

📊 Headline Inflation Cools?

• The consumer price index USCPI for July is out and it’s reshuffling the markets. Month over month, US inflation rose 0.2% and 2.7% year-over-year, coming in a notch below the 2.8% annual rise economists had penciled in. Hurray, rate cuts?
• That still means prices are moving higher, but not at the pace that would make Fed officials lose sleep — a welcome surprise for markets still digesting tariff-driven price pressures.
• Economists had been watching closely for signs that President Donald Trump’s trade tariffs — now in full swing — might push inflation into a more worrisome range. July’s print suggests those effects, while real, aren’t spiraling out of control yet.

🔍 Core CPI Shows Stability

• Core CPI (stripping out food and energy prices) rose 0.3% on the month and 3.1% from a year earlier, in line with economist forecasts.
• The Fed leans more heavily on core inflation as it tends to be a better long-term gauge of price pressures. This alignment with expectations probably helps cement the market’s read that the central bank can keep inching toward a rate cut.
• Still, some inflation categories remain sticky — shelter, medical services, and recreation — which means the Fed may still want to see a couple more tame prints before committing to deeper easing.

💡 Tariffs, Trade, and the Trump Effect

• Trump’s tariff strategy — aimed at reshaping the US’s global trade footprint — has already shown up in pockets of consumer pricing, particularly in furniture, appliances, and sporting goods.
• Economists got spooked when June’s hotter CPI print looked like the first clear evidence of tariff pass-through to households. July’s moderation may indicate businesses are eating some of those costs rather than passing them fully onto consumers… for now.
• That said, trade uncertainty remains high, and more tariff escalations could flip the script quickly.

📈 Market Reaction: Stocks Cheer, Dollar Sags

• Dow Jones futures jumped more than 200 points after the CPI release, just about enough to pare back its Monday loss, signaling a risk-on mood as traders priced in higher odds of a Fed rate cut at the September meeting.
• The US dollar index slid as the softer-than-expected print gave currency traders more conviction that borrowing costs will move lower sooner rather than later.
• A cooler inflation number typically eases the pressure on the Fed. If officials signal they’re confident inflation is under control, cuts become a more viable tool to support growth — especially with the recent jobs number and services data hinting at a cooling economy.