Inflation Held Steady at 2.7% in July

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Consumer prices were up 2.7% in July from a year earlier, the Labor Department said Tuesday, holding steady with June’s gain of 2.7%.

That was below the 2.8% rise expected by economists surveyed by The Wall Street Journal.

Prices excluding food and energy categories — the so-called core measure economists watch in an effort to better capture inflation’s underlying trend — rose 3.1%, above forecasts for a 3% increase.

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Industries that rely heavily on immigrant labor experienced higher-than-normal price increases, said Alan Detmeister, chief global economist at UBS investment bank. That includes household services such as landscaping, dry cleaning and hair and nail salons.

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The combination of tariffs and immigration putting upward pressure on prices could make the Federal Reserve’s decision about when to cut rates even tougher. Several officials are arguing in favor of lower rates after a weak jobs report earlier this month showed the economy might not be as strong as previous reports made it seem.

“We are all thinking about when the Fed will cut rates,” said Bank of America senior U.S. economist Stephen Juneau. “And inflation is a big reason why they are still on hold.”

Still, consumers are feeling a bit more upbeat than they had been earlier this year. Expectations of inflation in the coming year fell for the second-straight month in July, according to the University of Michigan’s survey of consumer sentiment, though they remain above where they were just after the election.

Michelle Meyer, chief economist at Mastercard, attributes the slight improvement in people’s moods to the fact that inflation so far has been concentrated in items like appliances and car tires that consumers don’t interact with as regularly. Prices for new and used cars, and airline fares, actually decreased in June.

“Even though furniture is going up,” she said. “It’s not something you need to buy.”

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