Trump claims inflation is minimal despite July 2025 data showing 2.7% headline and 3.1% core inflation

Inflation in the United States has shown signs of stabilisation in recent months, with headline rates hovering around levels that some observers might describe as modest compared to the peaks of prior years. As of July 2025, the Consumer Price Index (CPI) registered a year-over-year increase of 2.7%, unchanged from the previous month, according to data from the Bureau of Labor Statistics. This figure aligns closely with the Federal Reserve’s long-term target of 2%, yet underlying pressures in core inflation suggest the economic picture remains nuanced, warranting careful scrutiny from investors navigating potential policy shifts.

Current Inflation Landscape

The latest inflation readings paint a picture of relative calm on the surface, but a deeper dive reveals persistent elements that could influence monetary policy and market dynamics. Headline CPI, which includes volatile food and energy components, stood at 2.7% for the 12 months ending July 2025, as reported by the U.S. Labor Department on 12 August 2025. This stability follows a period of fluctuation earlier in the year, where rates dipped to as low as 2.4% in May before edging up slightly.

Core CPI, excluding food and energy to provide a clearer view of underlying trends, rose to 3.1% year-over-year in July, up from 2.8% in previous months. This metric, often favoured by economists for its insight into sustained price pressures, indicates that inflation is not entirely subdued. Shelter costs, a significant driver, increased by 0.2% month-over-month, continuing to exert upward pressure. Food prices remained flat overall, with a slight decline in at-home food costs offset by rises in dining out, while energy prices showed minimal volatility.

These figures come amid broader economic data suggesting a resilient U.S. economy. The Producer Price Index (PPI), a gauge of wholesale inflation, jumped to 3.3% year-over-year in July, marking its largest increase since mid-2022. Such trends could signal emerging cost pressures from supply chains, potentially amplified by geopolitical factors or trade policies. Analysts at Trading Economics noted that core consumer prices increased by 3.1% in July 2025 over the previous year, reinforcing the view that inflation’s descent towards the Fed’s target may be gradual rather than swift.

Historical Context and Comparisons

To appreciate the current environment, it is instructive to compare with historical benchmarks. Inflation surged to multi-decade highs in 2022, peaking above 9% amid post-pandemic supply disruptions and stimulus effects. By contrast, the 2.7% headline rate in July 2025 represents a significant cooling, though it remains above the pre-2020 average of around 1.8%. Data from the U.S. Inflation Calculator indicates that annual rates have averaged approximately 2.6% through the first half of 2025, a level that might be perceived as benign in isolation but carries implications when viewed against rising core measures.

Longer-term trends underscore the Federal Reserve’s balancing act. The Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation gauge, stood at 2.6% as of June 2025, half a percentage point above the 2% target. Morningstar’s analysis as of 30 July 2025 highlights how the Fed’s dual mandate of maximum employment and price stability often pits these goals against each other, with recent data suggesting inflation remains stubborn in certain sectors despite overall moderation.

Implications for Investors and Policy

For investors, these inflation dynamics carry direct ramifications across asset classes. Fixed-income markets, sensitive to interest rate expectations, may face headwinds if core inflation’s persistence delays anticipated rate cuts. The Federal Reserve’s median forecast for 2025 PCE inflation was revised upward to 2.5% in late 2024, reflecting concerns over potential inflationary impulses from fiscal or trade policies. While headline figures suggest a soft landing is within reach, the uptick in PPI could foreshadow broader price increases, prompting a reassessment of bond yields and equity valuations.

Equity investors, particularly in sectors like consumer goods and real estate, should monitor shelter and food components closely. The Economic Research Service’s Food Price Outlook for July 2025 reported that food prices rose 3.0% year-over-year in June, with variations between at-home and away-from-home consumption. Such disparities could affect corporate margins, especially for companies reliant on discretionary spending. In a nod to dry humour, one might say that while inflation isn’t boiling over, it’s still simmering enough to keep portfolios from going cold.

Analyst-led forecasts provide further guidance. Models from the Bureau of Labor Statistics, incorporating seasonal adjustments, suggest that core inflation could moderate to 2.8% by year-end 2025, assuming no major disruptions. However, sentiment from credible sources like CNBC’s coverage of the July PPI report indicates caution: economists expect a 0.2% monthly increase, but any upside surprise could reinforce bets against imminent rate reductions. Market sentiment, as gauged by verified financial outlets, leans towards guarded optimism, with Bankrate noting that while inflation has halved from its peak, volatile elements like energy could still sway the trajectory.

Sector-Specific Impacts

• Housing and Shelter: Accounting for a substantial portion of CPI, shelter inflation at 0.2% monthly in July underscores ongoing pressures from rental markets and home prices. Investors in real estate investment trusts (REITs) may find opportunities in regions with supply constraints, but higher borrowing costs could temper growth.
• Food and Commodities: Flat food prices offer respite for consumers, yet the 3.0% annual rise signals selective inflation. Agricultural commodities, influenced by weather and global supply, remain a wildcard.
• Energy: Subdued energy costs have helped anchor headline inflation, but geopolitical tensions could reverse this trend, impacting utilities and transportation sectors.

Forward-Looking Risks and Opportunities

Looking ahead, several risks loom on the horizon. Geopolitical developments, including trade tariffs, have been cited by economists as potential upward drivers of inflation. CNBC’s breakdown for July 2025 notes evidence that such measures are already exerting pressure, with core rates ticking higher. Conversely, technological advancements and productivity gains could exert deflationary forces, particularly in manufacturing.

Investor strategies might pivot towards inflation-hedged assets, such as Treasury Inflation-Protected Securities (TIPS) or commodities, should core pressures persist. The USAFacts overview emphasizes the distinction between headline and core metrics, advising a focus on long-term trends over volatile subsets. In summary, while U.S. inflation appears contained at 2.7% headline, the 3.1% core rate serves as a reminder that the path to normalisation is not without bumps. Vigilance remains key for those positioning portfolios amid these evolving economic signals.

References

• Bankrate. (2025). Latest inflation statistics. https://www.bankrate.com/banking/federal-reserve/latest-inflation-statistics/
• Bureau of Labor Statistics. (2025). Consumer Price Index Summary. https://www.bls.gov/news.release/cpi.nr0.htm
• Bureau of Labor Statistics. (2025). Consumer Price Index. https://www.bls.gov/cpi/
• CNBC. (2025, August 12). Here’s the inflation breakdown for July 2025 in one chart. https://www.cnbc.com/2025/08/12/heres-the-inflation-breakdown-for-july-2025-in-one-chart.html
• CNBC. (2025, August 14). PPI inflation report July 2025. https://www.cnbc.com/2025/08/14/ppi-inflation-report-july-2025-.html
• Economic Research Service. (2025). Food Price Outlook: Summary Findings. https://www.ers.usda.gov/data-products/food-price-outlook/summary-findings
• Morningstar. (2025, July 30). How healthy is U.S. economy? Here’s what top economic indicators say. https://www.morningstar.com/economy/how-healthy-is-us-economy-heres-what-top-economic-indicators-say
• NBC News. (2025). July 2025 inflation and rising tariffs. https://www.nbcnews.com/business/economy/july-2025-inflation-prices-rising-tariffs-what-to-know-rcna224267
• The Global Statistics. (n.d.). Inflation rates in U.S. by year. https://theglobalstatistics.com/inflation-rates-in-us-by-year
• Trading Economics. (2025). United States inflation CPI. https://tradingeconomics.com/united-states/inflation-cpi
• Trading Economics. (2025). United States core inflation rate. https://tradingeconomics.com/united-states/core-inflation-rate
• U.S. Inflation Calculator. (2025). Current inflation rates. https://www.usinflationcalculator.com/inflation/current-inflation-rates/
• USAFacts. (2025). What is the current inflation rate in the U.S.? https://usafacts.org/answers/what-is-the-current-inflation-rate/country/united-states/
• ARQ Wealth. (2025). Economic concerns 2025: inflation and politics. https://arqwealth.com/economic-concerns-2025-inflation-politics