Tariff-Driven Price Gains Emerge as Core Inflation Hits 5-Month High

U.S. inflation remained unchanged in July, with overall consumer prices rising 2.7% year-over-year, the same as the previous month. However, underlying inflation, as measured by core prices excluding food and energy, climbed to 3.1%, the highest in five months. The Labor Department’s latest data showed that while rents and gasoline prices have slowed, the impact of President Donald Trump’s sweeping tariffs on imports is beginning to show in rising product costs [1].

The tariffs, including a universal 10% import duty imposed in April and higher levies on countries like China and Canada, are now pushing up prices for goods such as toys, clothing, and sporting equipment. For instance, toy prices surged 1.8% in June, following a 1.3% increase the prior month, while clothing prices rose 0.4%. The average tariff rate has increased from around 2% before Trump’s inauguration to nearly 18%, the highest since the 1930s [1].

Economists note that while these tariffs are starting to filter through to consumer prices, companies are also absorbing part of the cost. Goldman Sachs estimates that by this fall, consumers are likely to bear 67% of the tariff burden, up from 22% as of June, while foreign exporters will cover 25% and U.S. companies, 8%. This shift indicates a growing pressure on households to pay higher prices for goods that were previously shielded [1].

Businesses, including major retailers and manufacturers, are already adjusting to these changes. Apparel brands, eyewear company Warby Parker, and consumer goods giant Procter & Gamble have all announced price increases. Cosmetics company e.l.f. Beauty raised prices across its entire product line by a dollar starting August 1, marking its third price hike in 21 years. “We tend to lead and then we will see how many more follow us,” said e.l.f. Beauty CEO Tarang Amin [1].

The Labor Department’s Bureau of Labor Statistics is facing heightened scrutiny amid Trump’s dismissal of its previous director and replacement with E.J. Antoni, an economist from the Heritage Foundation. At the same time, a government-wide hiring freeze has reduced the amount of data the agency collects for inflation reports. UBS economist Alan Detmeister estimates the Bureau is now collecting about 18% fewer price quotes than before, potentially leading to more volatile monthly data, though still reliable over time [1].

The Federal Reserve is caught in a delicate balancing act. Despite slower hiring and rising inflation pressures, financial markets are anticipating a rate cut. Yet Fed Chair Jerome Powell has cautioned that inflation could prevent any easing, a stance that has drawn criticism from Trump, who has pushed for lower borrowing costs [1].

While some inflationary forces are in motion, other factors are tempering broader price increases. Apartment rental price growth has cooled from pandemic-era highs, and new car prices have declined slightly, despite 25% tariffs on autos and auto parts. However, economists warn that as tariffs become more finalized, businesses are likely to shift more of the costs to consumers, signaling further price pressures in the coming months [1].

Source: [1] Inflation is staying level—for now—but the next wave of tariff-driven price increases is already in motion: ‘They are going up, we’ve seen that’ (https://fortune.com/2025/08/12/us-inflation-flat-tariffs-price-pressures-fed-trump-bls/)