Analysis of the U.S. Consumer Price Index (CPI) in July 2025 | Is there hope for a rate cut amidst slowing inflation?

[Economic Analysis] U.S. Consumer Price Index (CPI)

The **U.S. Consumer Price Index (CPI)** for July, released on August 12, 2025, aligned with market expectations and signaled a slowdown in inflation. However, underlying this is a persistent inflationary pressure. In this post, we will conduct an in-depth analysis of the latest CPI data to examine the current trend of inflation and forecast the future policy direction of the **Federal Reserve (Fed)**.

Analysis of the U.S. Consumer Price Index (CPI) in July 2025

1. July U.S. CPI: Key Data and Characteristics

The U.S. Consumer Price Index (CPI) for July 2025 rose by 2.7% year-over-year, maintaining the same increase as the previous month, June. This result was in line with market forecasts, indicating that the overall pace of inflation is not rising sharply.

In particular, the **Core Consumer Price Index (Core CPI)**, which excludes volatile food and energy prices, increased by 3.1% year-over-year, recording its highest rise this year. The following characteristics were observed for specific items:

• Energy: Energy costs fell by 1.1% from the previous month due to lower fuel prices. Gasoline prices, in particular, dropped by 2.2%, helping to curb the overall inflation rate.
• Housing: The index for housing and utilities rose by 0.2%, acting as a major factor driving inflation.
• Services: The prices of services, including medical care, airline fares, and recreation, remained at a high level, leading the rise in Core CPI. Airline fares, in particular, showed a notable increase, rising by 4.0%.

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2. Impact of Tariffs and Rate Cut Expectations

The aspect of the July CPI release that garnered the most market attention was the impact of the Trump administration's tariff policies on prices. While price increases were observed in some items due to tariffs, the general assessment was that the effect was more moderate than expected. This suggests that the main cause of inflation within the U.S. is not tariffs but structural factors, such as robust demand in the service sector and upward wage pressure.

As the CPI data did not significantly exceed expectations, market expectations for a Federal Reserve (Fed) interest rate cut have grown again. With weakening employment market indicators and a widespread belief that inflation is within a controllable range, the possibility of a rate cut at the September Federal Open Market Committee (FOMC) meeting has increased. However, Fed officials are still maintaining a cautious stance. They have emphasized the need to maintain the current policy, highlighting the remaining uncertainty in inflation and the dilemma they face between employment and inflation indicators.

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3. Conclusion: Between Inflation and Employment, Two Separate Paths

The U.S. Consumer Price Index (CPI) for July 2025 showed that the overall inflation trend has slowed, but the pressure from core inflation remains. In particular, while falling fuel prices contributed to lowering the overall inflation rate, housing and service prices are still at high levels. This suggests that inflation is not yet fully resolved.

▲ An illustration visualizing the Fed's dilemma between inflation and employment

In conclusion, the Federal Reserve (Fed) is facing a difficult dilemma between its two goals of 'price stability' and a strong 'employment market'. As future economic indicators may shift monetary policy, the market must continue to take a cautious, data-driven approach.

Key Summary:
The July 2025 CPI showed a slowdown in overall inflation but a rise in core inflation, which will have a complex impact on the Fed's rate decisions. The market must respond cautiously to future data releases.

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