US July CPI Rises 2.7%, Below Expectations... 90% Chance of September Rate Cut, 57% Odds for Three Cuts This Year

Despite Tariff Impact, Effects Remain Limited
Core CPI Rises 3.1%... A Variable for Rate Outlook
90% Probability of September Cut... 57% Chance for Three Cuts This Year
August CPI and Jobs Report Are Key

The U.S. Consumer Price Index (CPI) growth rate for last month came in below market expectations. While President Donald Trump’s tariff policy is having an impact, its effect has been more limited than anticipated. Coupled with the recent slowdown in employment, the market is increasingly expecting not only a rate cut in September but also up to three rate cuts within the year. However, the rise in core CPI is being highlighted as a variable for future rate decisions.

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According to the U.S. Department of Labor on August 12 (local time), the CPI for July 2025 rose 2.7% year-on-year. This was below the market expectation of 2.8% and matched the June figure of 2.7%. On a month-over-month basis, the CPI increased by 0.2%, which was in line with forecasts but slower than June’s 0.3% rise.

In contrast, the core CPI, which excludes the more volatile energy and food categories, rose 3.1% year-on-year. This was a larger increase than June’s 2.9% and exceeded the market expectation of 3.0%. Driven by rising service prices, this marked the largest increase so far this year. On a month-over-month basis, core CPI climbed 0.3%, higher than June’s 0.2%, and matched market forecasts. Core CPI is considered a key indicator for gauging underlying inflation trends.

By category, housing costs saw a notable increase. Housing rose 0.2% from the previous month, accounting for the largest share of the overall CPI increase. Food prices remained flat, while energy prices fell by 1.1%. Prices for used cars and trucks rose 0.5%, but prices for new vehicles, which are affected by tariffs, showed no change. Apparel prices increased by 0.1%. Both transportation services and medical services rose by 0.8%.

With the CPI coming in below expectations, anticipation for a rate cut in September has grown even stronger. Although President Trump’s tariff policy is impacting the market, its effect has been weaker than expected, providing some relief. While the rise in core CPI is a variable for rate cut projections, the market is placing greater emphasis on the stagnation in headline CPI. In addition, as signs of a slowdown in employment become more pronounced, there is growing expectation that the Federal Reserve will cut rates not only in September but also at all three remaining FOMC meetings this year to prevent further weakening of the labor market.

In the interest rate futures market, the probability that the Federal Reserve will cut rates by 0.25 percentage points at the September Federal Open Market Committee (FOMC) meeting is being reflected at about 90.1%. This is up from 85.9% the previous day. The probability of a 0.75 percentage point rate cut by the end of the year also jumped from 45% the previous day to 57.1%.

Alexandra Wilson-Elizondo, Global Co-Chief Investment Officer for Multi-Asset Solutions at Goldman Sachs, analyzed, “There has not been a clear increase in prices due to tariffs,” adding, “Companies are offsetting cost pressures by carefully adjusting prices, taking into account inventory drawdowns and consumer price sensitivity.” She went on to say, “Today’s inflation data supports the possibility of a ‘preventive’ rate cut in September, which will be a key driver for the market.”

However, before the September FOMC, the August CPI and employment report are still to come, and the Fed is expected to make its final decision on a rate cut after reviewing these figures.

This content was produced with the assistance of AI translation services.