Inflation is looking tame. The question is, will the trend hold in August and September?
It’s been three full months of record-high tariffs, and yet rolling 12-month overall inflation came in at 2.7% in July, the same percentage rate as June, according to last week’s Bureau of Labor Statistics (BLS) inflation report. Core inflation (CPI), which excludes food and oil, rose 3.1% in July, up from 2.9% in June. It barely moved upwards, surprising everyone who predicted inflation would rise substantially.
July’s inflation figures come at a time when importers faced 10% tariffs under the International Emergency Economic Powers Act, announced on “Liberation Day” in April. And at least two big import sectors faced high Section 232 tariffs.
Cars and car parts are subject to Section 232 tariffs of 25%. New passenger car prices were flat in July. The rolling 12-month inflation for new car prices was about 1.3% higher than the same period last year. And new car prices have risen 2.5% since April. Mexico and Canada still have duty free access to the U.S., providing the finished vehicles are 75% sourced from North American parts.
Section 232 tariffs on passenger vehicles were active for the EU, Japan and South Korea. Tariff rates only recently dropped to 15% in August. If tariff costs increase prices for consumers, then by this measure, a tariff reduction of 10 percentage points should lower prices for new car buyers. (It won’t.)
Why haven’t new car prices risen since the 232s were enacted? For starters, last year’s car sales rose but are down from 2019 levels. The automotive sector is in both a transition from combustion engine to battery powered vehicles, and coming down from low interest rate sales highs of the previous years. But perhaps just as important, Ford said that they would give new car buyers their employee discount despite tariffs. That likely forced rivals to think twice about extending their tariff costs to consumers.
Business cycles, supply and demand, and new entrants into the market all impact prices more than tariffs. We have higher inflation on non-tariffed goods, like rent, than we have on tariffed goods.
Beef prices are rising again this summer, and beef is definitely tariffed. But those higher import costs are not necessarily to blame for the price increase.
Beef prices rose 1.5% in July with ground beef prices going from $6.12 per pound in June to about $6.34 per pound in July, a significant 3.6% month-over-month increase. Beef prices are up between 11.5% (ground beef) to 12.4% (steaks) year-over-year through July 2025 – an all-time high.
High summertime demand, depletion of U.S. cattle herds due to ranchers leaving the market for a variety of reasons, and phytosanitary concerns over Mexican live cattle were all inflationary. The USDA banned imported cattle from Mexico due to a recent outbreak of screw worm disease there.
The way to lower inflation is to make it attractive for ranchers to expand herds in the U.S. We would not have to worry as much about meeting demand because we can’t import live cattle or frozen meats. Beef prices have been rising steadily since 2005, despite higher import volumes from lower cost producers. And, of course, no tariffs.
“I can see inflation continuing to rise in August and September, but I am not expecting anything crazy,” said CPA economist Andrew Rechenberg.
“Some people will say July’s 3.1% inflation is an early sign of tariff pricing pressure, but if you look at the BLS’ numbers, you can see it’s all services related. It’s not imports,” Rechenberg said.
As “Liberation Day” Tariffs Take Hold, Inflation Could Rise, But It Won’t All Be Due to Tariffs
Inflation is looking tame. The question is, will the trend hold in August and September?
It’s been three full months of record-high tariffs, and yet rolling 12-month overall inflation came in at 2.7% in July, the same percentage rate as June, according to last week’s Bureau of Labor Statistics (BLS) inflation report. Core inflation (CPI), which excludes food and oil, rose 3.1% in July, up from 2.9% in June. It barely moved upwards, surprising everyone who predicted inflation would rise substantially.
July’s inflation figures come at a time when importers faced 10% tariffs under the International Emergency Economic Powers Act, announced on “Liberation Day” in April. And at least two big import sectors faced high Section 232 tariffs.
Cars and car parts are subject to Section 232 tariffs of 25%. New passenger car prices were flat in July. The rolling 12-month inflation for new car prices was about 1.3% higher than the same period last year. And new car prices have risen 2.5% since April. Mexico and Canada still have duty free access to the U.S., providing the finished vehicles are 75% sourced from North American parts.
Section 232 tariffs on passenger vehicles were active for the EU, Japan and South Korea. Tariff rates only recently dropped to 15% in August. If tariff costs increase prices for consumers, then by this measure, a tariff reduction of 10 percentage points should lower prices for new car buyers. (It won’t.)
Why haven’t new car prices risen since the 232s were enacted? For starters, last year’s car sales rose but are down from 2019 levels. The automotive sector is in both a transition from combustion engine to battery powered vehicles, and coming down from low interest rate sales highs of the previous years. But perhaps just as important, Ford said that they would give new car buyers their employee discount despite tariffs. That likely forced rivals to think twice about extending their tariff costs to consumers.
Business cycles, supply and demand, and new entrants into the market all impact prices more than tariffs. We have higher inflation on non-tariffed goods, like rent, than we have on tariffed goods.
Beef prices are rising again this summer, and beef is definitely tariffed. But those higher import costs are not necessarily to blame for the price increase.
Beef prices rose 1.5% in July with ground beef prices going from $6.12 per pound in June to about $6.34 per pound in July, a significant 3.6% month-over-month increase. Beef prices are up between 11.5% (ground beef) to 12.4% (steaks) year-over-year through July 2025 – an all-time high.
High summertime demand, depletion of U.S. cattle herds due to ranchers leaving the market for a variety of reasons, and phytosanitary concerns over Mexican live cattle were all inflationary. The USDA banned imported cattle from Mexico due to a recent outbreak of screw worm disease there.
The way to lower inflation is to make it attractive for ranchers to expand herds in the U.S. We would not have to worry as much about meeting demand because we can’t import live cattle or frozen meats. Beef prices have been rising steadily since 2005, despite higher import volumes from lower cost producers. And, of course, no tariffs.
“I can see inflation continuing to rise in August and September, but I am not expecting anything crazy,” said CPA economist Andrew Rechenberg.
“Some people will say July’s 3.1% inflation is an early sign of tariff pricing pressure, but if you look at the BLS’ numbers, you can see it’s all services related. It’s not imports,” Rechenberg said.
IEEPA Tariffs Nearly Doubling. Will Inflation Undermine the America First Trade Agenda?
If inflation looked okay in July, the next two months might not compare.
When BLS releases its next CPI numbers we will be nearly four weeks into the IEEPA tariffs. That will change the inflation picture for August and September.
For example, the producer-price index jumped 0.9% last month after no change in June, the Department of Labor said on Thursday. The yearly rate of wholesale inflation rose nearly 100 basis points to 3.3% from 2.4% — a five-month high.
A day prior to those numbers coming out, on August 12, CNBC reporter Rick Santelli said he thought we were “over the hump” on tariff-induced inflation.
“Most likely, if you look at the entire effects of the tariffs and the uncertainty, we are definitely over the hump,” Santelli said.
CPA’s Senior Economist Mihir Torsekar said it is better to hedge expectations. If the last few months were record-high tariffs with core inflation rising a tad, we are now above those record-breaking levels.
“I would not say we are over the hump,” said Torsekar. “Small businesses employ 46% of American workers, account for roughly one-third of U.S. imports, and tend to have fewer trade partners—think Southeast Asia, Mexico, and China. These companies don’t have the margins to absorb these tariffs like a Wal-Mart or other big-box retailers, and are more likely to pass that along to their buyers. With their inventories rundown, more tariffed items will be entering into the supply chain, along with some price increases.”
Of course, tariffs will be blamed for any spikes in August and September CPI.
But there is another reason inflation is not falling below 2%, the Federal Reserve’s inflation target which would allow for interest rate cuts. And that is because the Fed has been increasing money supply this year. If we get more of that, it will be inflationary.
The money supply (M2) has increased roughly 4.5% year-to-date—as the above chart shows— while commercial bank deposits are up 4% during the same period. Taken in sum, this means there is more money in circulation, more money in checking and savings accounts, to be spent on everything from tariffed-goods, to services–which are not subject to tariffs.
“The recent uptick in topline inflation to over 3% could be because of the money supply rising into the summer,” Torsekar said, noting that in wholesale PPI inflation showed once again that services provided much of the push higher, rising 1.1% in July for the largest gain since March 2022.
Still, August and September will see steeper pricing pressure on imports.
Vietnam had 10% tariffs and now faces 20% tariffs. The EU, South Korea and Japan have 15% tariffs, which is not a huge spike from 10%. The Section 232 auto and auto part tariff rates are also now 15%, down from 25% for those three trading partners.
India tariffs might hit 50% in September, but are now 25% instead of 10% in July.
Oil prices falling below $60 a barrel could keep any import-related inflation in check.
Going forward, it is best to assume the base case for core inflation (minus food and oil) will come in over 3% again in August and September. If it approaches 4%, the Trump administration could get cold feet, even if only temporarily, on the Section 232 tariffs currently under investigation for a handful of sectors, including pharmaceuticals and chips. This is a worse case scenario. More 232 tariffs are expected to hit by September.
Jeff Ferry, CPA’s Chief Economist Emeritus, is expecting a nearly 100 basis point rise in inflation by the end of the year, a little higher than a Boston Federal Reserve forecast of between 0.5% and 0.8%.
“Tariffs will probably add to inflation, but importers and exporters will pay much of the cost of the tariffs so consumers only see a small fraction of that increase,” said Ferry.
In layman’s terms, a 10% tariff does not translate into a 10% price increase. The tariff is charged on the cost of the product. For example, Nikes don’t really cost $100. The import cost might be $15 at the port of entry. So a 10% tariff is charged on the $15, not the retail mark-up.
“The higher tariffs kicking in now will lead to a small one time price increase on imported goods, depending on the product itself and the level of competition in the industry, but the consumer price impact will be very limited” said Ferry. “The Fed will likely manage the underlying rate of inflation to remain between 2% and 3%.”
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