The U.S. Consumer Price Index rose 0.2% month-on-month in July 2025, bringing annual headline inflation to 2.7% – largely in line with economist expectations. The core CPI, which excludes volatile food and energy prices, increased 0.3% monthly and 3.1% year-over-year, matching forecasts.

The relatively benign inflation data confirmed the limited impact of tariffs on overall price pressures, providing the Fed with room to respond to weakening labor market conditions using policy easing tools.

Key Takeaways from U.S. CPI Report:

• Headline CPI: +0.2% m/m, +2.7% y/y (in line with expectations)
• Core CPI: +0.3% m/m, +3.1% y/y (matching forecasts)
• Energy prices declined 1.1% month-over-month, providing disinflationary pressure
• Food prices remained flat on the month, with no significant contribution to overall inflation
• Shelter costs moderated to just +0.2% m/m, the housing component showing encouraging signs of cooling
• Tariff-exposed goods showed mixed results: Core goods ex-autos rose only 0.2% m/m after jumping 0.55% in June
• Services inflation persisted with airline fares surging 4.0% m/m and medical care costs rising 0.7%

Link to official U.S. July CPI Report

Despite widespread concerns about inflationary pressure from recent trade policy implementations, the July data suggests corporations are continuing to absorb most tariff costs rather than passing them through to consumers. Sectors most exposed to import tariffs showed relatively subdued price increases:

Appliances surprisingly declined 0.9% month-over-month, while apparel rose just 0.1% and sporting goods increased 0.4%. New vehicle prices remained unchanged despite significant tariff exposure, though used vehicles rose 0.5% after four consecutive monthly declines.

Market Reaction

U.S. Dollar vs. Major Currencies: 5-min

Overlay of USD vs. Majors Chart by TradingView

The US dollar weakened broadly following the CPI release, with currency markets interpreting the data as increasing the likelihood of Fed rate cuts. The CME FedWatch Tool indicated a 94.2% likelihood of September easing, up from the previous 85.9% a day before the CPI release.

USD fell approximately 0.42% against EUR and 0.35% against GBP. Losses were limited against JPY at 0.18% chalking up a 0.40% decline versus both AUD and CAD. The sharp initial tumble was followed by continued weakness throughout the morning U.S. session.