U.S. business activity increased in July, but higher prices for goods and services indicate inflation may accelerate due to import tariffs. Despite the uptick, sentiment among businesses remains downbeat, with concerns over tariffs and funding cuts.

Consumer prices rose the most in five months in June, driven by tariff-exposed goods like household furnishings, appliances, and sporting goods. President Trump’s import duties are starting to impact inflation.

S&P Global’s Composite PMI Output Index rose to 54.6 in July, the highest level since December. While the services sector saw growth, the manufacturing PMI dropped to 49.5, the first contraction since December.

Higher prices for inputs and services were reported in the survey, with many attributing the rise to tariffs. Nearly two-thirds of manufacturers reported higher costs due to tariffs.

The increase in business activity and prices argue against the Federal Reserve resuming interest rate cuts this month. President Trump is urging rate cuts, but the Fed is expected to keep rates steady.

Price hikes in July suggest consumer price inflation will rise above the Fed’s 2% target. The survey also indicates a stable labor market but job losses in factories. New orders increased, but exports declined due to trade tensions and immigration crackdowns.

Read more at Yahoo Finance: US business activity rises; tariffs fuel inflation concerns