• Annual US inflation rose to 2.8% in July, marking a third straight monthly increase and the highest level since February.
  • Core CPI, which excludes food and energy, remains stubbornly high at 3.0%, well above the Federal Reserve's target.
  • Rising import duties and persistent shelter costs are cited as primary drivers, increasing the likelihood of delayed Fed rate cuts.

Inflationary pressures in the United States are not only elevated but are now showing clear signs of trending upwards, according to the latest data and economic commentary. The headline Consumer Price Index (CPI) accelerated to 2.8% year-over-year in July, its third consecutive monthly climb and the highest reading in five months.

The more closely watched core CPI measure, which strips out volatile food and energy prices, held firm at 3.0%. This persistence well above the Fed's 2% target is causing concern among policymakers and market participants. Nowcasts for August suggest the trend is continuing, with estimates pointing to headline CPI of 2.84% and core CPI of 3.05%.

Efforts to curb inflation have hit a snag, with new import duties contributing to higher prices for goods like household furnishings and recreation. While some categories such as gasoline and new cars saw price declines, these were offset by notable increases in used cars, airline fares, and household operations. A person familiar with the matter noted that shelter and medical care costs remain the most significant and persistent drivers of the monthly gains, creating a challenging environment for the Fed.

“The biggest concern is inflation too high, trending up,” a source said, summarizing the prevailing unease. Without a decisive turn in the data, the central bank would be forced to maintain its restrictive policy stance for longer, delaying any pivot to rate cuts that markets had been anticipating.

The OECD area overall reported inflation rising to 4.2% year-on-year in June, indicating this is not an isolated US phenomenon but part of a broader global trend. The continued pressures increase the likelihood that the Federal Reserve may not only delay interest rate cuts but could even consider additional tightening if the data worsens, a scenario that would ripple through credit markets and risk asset valuations.

Attempts to reach officials for further comment on the August projections were not immediately successful. For consumers, the data translates to eroding purchasing power, particularly for essentials like housing and medical care, keeping the cost of living at the forefront of political and economic debate.