WASHINGTON (Reuters) -U.S. consumer prices increased moderately in July, though rising costs for goods because of import tariffs led to a measure of underlying inflation posting its largest gain in six months.

The consumer price index rose 0.2% last month after gaining 0.3% in June, the Labor Department's Bureau of Labor Statistics said on Tuesday. In the 12 months through July, the CPI advanced 2.7% after rising 2.7% in June. Economists polled by Reuters had forecast the CPI rising 0.2% and increasing 2.8% year-on-year.

Excluding the volatile food and energy components, the CPI rose 0.3%, the biggest gain since January, after climbing 0.2% in June. The so-called core CPI increased 3.1% year-on-year in July after advancing 2.9% in June. 

The Federal Reserve tracks different inflation measures for its 2% target. Prior to the CPI data, financial markets expected the U.S. central bank would resume cutting interest rates in September after July's weak employment report and sharp downward revisions to the nonfarm payrolls counts for May and June. 

The Fed left its benchmark overnight interest rate in the 4.25%-4.50% range last month for the fifth straight time since December. 

The CPI report was published amid mounting concerns over the quality of inflation and employment reports following cuts in budget and staffing that have led to the suspension of data collection for portions of the CPI basket in some areas across the country.

Those worries were amplified by President Donald Trump firing Erika McEntarfer, the head of the BLS, early this month after stall-speed job growth in July, reinforced by sharp downward revisions to the May and June nonfarm payrolls counts.

DATA COLLECTION SUSPENSION

The suspension of data collection followed years of what economists described as the underfunding of the BLS under both Republican and Democratic administrations. The situation has been exacerbated by the Trump White House's unprecedented campaign to reshape the government through deep spending cuts and mass layoffs of public workers.

Citing the need to "align survey workload with resource levels," the BLS suspended CPI data collection completely in one city in Nebraska, Utah and New York. It has also suspended collection on 15% of the sample in the other 72 areas, on average.

This affected both the commodity and services pricing survey as well as the  housing survey, which the BLS said resulted in the number of collected prices and the number of collected rents used to calculate the CPI temporarily reduced. That has led to the BLS using imputations to fill in the missing information. 

The share of different cell imputation in the CPI data jumped to 35% in June from 30% in May. 

Different cell imputation, which the BLS uses when all prices are unavailable in the home cell, maintains the item category but expands geography. The home cell method, considered by economists as higher quality, uses the average price of the same item in the same location as the missing product's price.

The use of different cell imputation has grown from a share of only 8% in June 2024. Economists said while these measures adopted by the BLS will not introduce bias in the CPI data, the volatility was a cause for concern.