July’s inflation figures from the U.S. reveal a mixed but telling picture of price pressures in the economy. While the headline measure of consumer prices edged up more modestly than anticipated, the underlying—or “core”—measure posted its strongest monthly gain since January, signaling that inflationary pressures remain persistent beneath the surface.

Headline vs. Core: The Diverging Trends

The headline Consumer Price Index (CPI), which captures price movements across the full basket of goods and services including food and energy, rose by 0.20% in July. This increase came in slightly below market expectations, suggesting some easing in the most visible aspects of inflation. Over the past year, headline inflation has climbed from a post-pandemic low of 2.31% in April to 2.70% in July, continuing a gradual upward trend.

By contrast, core CPI—which excludes the more volatile food and energy components—rose by 0.32% in July. This marks the sharpest monthly core increase in six months. On a year-over-year basis, core inflation accelerated from 2.93% in June to 3.06% in July, underscoring that the underlying momentum in prices is still running hotter than the Federal Reserve’s 2% target.

Sector Insights: Goods, Services, and Seasonal Effects

Breaking down the data offers more nuance. Prices for core goods (excluding transportation-related items) saw a 0.20% monthly increase. This was notably slower than June’s 0.55% jump—the largest such gain since the inflation peak in 2022. Within this category, household furnishings, supplies, and apparel all posted increases, but not to the extent many had anticipated.

One factor influencing goods prices is the ongoing pass-through of tariffs. While tariffs are still feeding into inflation, the effect appears to be filtering through more gradually than expected. This could reflect a combination of slower demand growth and retailers’ pricing strategies.

On the services side, one surprising source of softness came from lodging away from home, which includes hotel prices. A pullback here may reflect cooling travel demand after a post-pandemic surge, providing a counterweight to some of the stronger price categories.

Why July Looked Hotter for Core CPI

Part of the apparent acceleration in core inflation from June to July can be traced to seasonal adjustment effects rather than a genuine surge in underlying pressures. In recent months, seasonal factors had been holding down reported core inflation by nearly 0.10 percentage points. That dampening effect was less pronounced in July, contributing roughly 0.07 to 0.08 percentage points to the month’s core CPI increase.

In other words, while the rise in core prices is real, some of the month-to-month jump is statistical rather than purely economic.

What This Means Going Forward

The July inflation report paints a picture of an economy where headline price growth is restrained by easing energy and certain goods prices, but underlying inflation in the core components remains stubborn. The persistence in services inflation—especially in shelter and certain discretionary categories—keeps pressure on the Federal Reserve to remain cautious about declaring victory over inflation.

With both headline and core annual rates drifting higher over recent months, policymakers will be watching closely to see whether July’s core strength was a blip amplified by seasonal factors or a sign of renewed upward momentum in prices.