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Consumer price index increases 0.2% in July

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Strong gains in tariff-sensitive goods prices

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CPI excluding foods and energy rises 0.3%; up 3.1%

year-on-year

By Lucia Mutikani

WASHINGTON, Aug 12 (Reuters) - U.S. consumer prices

increased moderately in July, though rising costs for services

such as airline fares and some tariff-sensitive goods like

household furniture caused a measure of underlying inflation to

post its largest gain in six months.

The mixed report from the Labor Department's Bureau of Labor

Statistics on Tuesday did not change financial market

expectations that the Federal Reserve would cut interest rates

in September amid signs of a deterioration in labor market

conditions.

Economists, however, cautioned that higher prices from

President Donald Trump's sweeping tariffs were still coming.

They argued that businesses continued to sell merchandise

accumulated before the import duties came into effect.

While financial markets breathed a sigh of relief on the data,

concerns are mounting over the quality of inflation and

employment reports following budget and staffing cuts that have

resulted in the suspension of data collection for portions of

the Consumer Price Index basket in some areas across the

country. Those worries were amplified by the firing of Erika

McEntarfer, the head of the BLS, early this month after data

showed stall-speed job growth in July.

Trump on Monday nominated Heritage Foundation economist E.J.

Antoni, a critic of the BLS, to head the statistics agency.

Antoni was a contributor to "Project 2025," the controversial

conservative plan to overhaul the federal government.

"Investors might want to hold back on the no-inflation

celebration, however, because the goods sitting on store shelves

arrived on boats months ago and the tariff hikes have yet to be

applied to the goods on ships steaming the consumers' way right

now," said Christopher Rupkey, chief economist at FWDBONDS.

"Inflation is coming."

The CPI rose 0.2% last month after a gain of 0.3% in June.

The moderation reflected a 2.2% decline in gasoline prices. Food

prices were unchanged after rising 0.3% for two straight months.

Grocery store food prices fell 0.1% as a 3.9% drop in the cost

of eggs more than offset a 1.5% increase in beef prices and 1.9%

rise in the cost of milk.

In the 12 months through July, the CPI advanced 2.7%,

matching the rise in June. Economists polled by Reuters had

forecast the CPI would rise 0.2% and increase 2.8% on a

year-over-year basis.

Excluding 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 was lifted by higher prices for

services, including a 4.0% rebound in airline fares as well as

strong increases in the costs of healthcare and dental

services.

The cost of household furnishings and supplies rose 0.7%,

while footwear prices surged 1.4%. Motor vehicle parts and

equipment prices vaulted 0.9%, driven by a 1.0% increase in the

cost of tires.

The core CPI increased 3.1% on a year-over-year basis in

July after an advance of 2.9% in June.

The U.S. central bank tracks different inflation measures for

its 2% target. The Fed left its benchmark overnight interest

rate in the 4.25%-4.50% range last month for the fifth straight

time since December.

U.S. stocks opened higher. The dollar slipped against a

basket of currencies. U.S. Treasury yields fell.

DATA COLLECTION SUSPENSION

The BLS has suspended data collection after 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 move 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 being temporarily

reduced. That has led the BLS to use 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.