Inflation in July remained high, with core prices rising 3.1% year over year, signaling a shift from easing services inflation to rising goods inflation. Consumers felt the crunch as shelter, transportation services, and medical care prices all increased. Economists expected a 3% rise in the core Consumer Price Index.

Annual headline CPI increased 2.7% in July, matching June’s number and slightly below economists’ expectations. Month over month, prices rose 0.2%, driven by lower gasoline prices and softer food inflation. Despite evidence of tariff-related pass-through to consumers, the report is not expected to deter the Fed from cutting rates in September.

Tariff-related price increases are starting to affect consumer costs as inflation accelerates. Categories seeing price increases include footwear, furniture, recreation, and transportation services. Ongoing trade developments may further alter the US effective tariff rate, currently near 18.6%, the highest since 1933.

Investors now place a 90% probability that the Fed will cut rates by 0.25% at its September policy meeting, up from 57% last month. The concern for the Fed is that inflationary pressures are likely to pick up in the coming months due to tariff-induced boosts. Stocks rose immediately after the inflation report, while the 10-year Treasury yield hovered below 4.3%.

Read more at Yahoo Finance: Core inflation rises by most in six months, stoking tariff-driven price concerns