July CPI preview: Summer sizzle

Wells Fargo Research Team Wells Fargo

Summary

The July Consumer Price Index will bring further signs of higher tariffs pushing up prices. We estimate the core CPI rose 0.3% in July. This would mark the strongest gain in six months and push the year-ago rate back up to 3.0%, as firming goods inflation is no longer being offset by the softening in services. Headline inflation is expected to rise a more modest 0.2% in July due to a drop in gasoline prices and slightly tamer food inflation. If realized, the year-ago rate in the headline CPI would hold steady at 2.7%—a touch stronger than in the spring but lower than the start of the year.

It is still early in the price adjustment process to see how higher import taxes will ultimately be distributed between the end-customer, domestic sellers and foreign exporters. At the same time, growing consumer fatigue is making it more difficult to raise prices in general. We continue to expect inflation to pick up, but not ratchet higher, over the second half of the year, with both the core CPI and core PCE deflator returning to around 3% in the fourth quarter.

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Wells Fargo Research Team

Wells Fargo

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