The bump in inflation since the start of 2026 has been driven in large part by higher energy prices, which have soared since the Iran war. Energy prices were a bit lower last month than right after the war began. But even before the energy price shock, inflation was still running above where it should be.

Core inflation, a measure that strips out volatile food and energy prices, fell one-tenth of a percentage point to 2.5% for the year ending in July.

“The economy isn’t out of the woods from the threat that inflation poses for everyday Americans, but price pressures aren’t hot to the touch either,” said Chris Rupkey, chief economist at FWDBONDS. “The bond market is confused about the inflation report, but the stock market is adding to its gains as the odds of a Fed interest rate hike in September are slightly less with the chance down to 50/50.”

President Donald Trump has seen his economic approval ratings fall dramatically since he entered office, in large part because of voter discontent with affordability. The higher inflation this year threatens to imperil Republican prospects in this year’s midterm elections.

Families are feeling the strain of higher prices for goods and services they use routinely. For instance, restaurant prices have gone up 3.4% in just the past year. The price of beef and veal has risen nearly 9.4% over the past year. Fruit and vegetable prices have increased by 5.1%, on average.

Clothing prices have risen 3.9% and electricity prices have risen 4.2%.

On the other hand, families looking to buy cars are seeing some relief. Used car prices have fallen 1.9% from June 2025, and new car prices have only risen 0.5% over the past year. Chicken prices have also fallen nearly 3%, and butter has dropped by 8.1%.

This latest CPI report comes after the Fed voted to hold interest rates steady at its meetings in January, March, April, June, and now most recently at the monetary policy committee’s July meeting. The central bank had cut interest rates three times last year.

The past two Fed meetings have been overseen by Warsh, and at the last meeting, the new chairman faced some criticism from Fed watchers for declining to spell out how he will address the market expectations for rate hikes.

Many investors think that the Fed will raise rates at least once by the end of the year, but Warsh has been less communicative about his thinking on the matter than some might have expected.

Still, Trump has pushed for the opposite to occur — for interest rates to be lowered. But given the hotter inflation prints in recent months, investors think the prospects for a rate cut this year are essentially nonexistent.

The president repeatedly criticized former Fed Chairman Jerome Powell for refusing to cut rates, but has so far deferred to Warsh on the matter and placed the blame on the broader Fed board, given that a majority vote is required to move interest rates.

There also appears to be a notable divide in thinking on the board itself. Three members of the Fed’s monetary policy committee dissented at the last meeting and said they would have preferred to hike rates.

Further adding to the challenging rate calculus is that there have been recent indications that the labor market is softening.

The government reported last Friday that the economy lost 23,000 jobs in July, a major surprise to the downside. The report marked the first negative jobs report since February, and followed a trend of increasingly weaker reports since a recent peak in March.

FED RATE HIKES LIKELY EVEN WITH WEAKENING JOBS OUTLOOK

Still, some experts and Fed watchers told the Washington Examiner this week that the labor market picture is not dire enough for the Fed to avoid rate hikes, given high inflation.

The Fed’s next meeting is set for mid-September, and every single inflation and employment report will be closely watched by the committee as it determines whether to raise interest rates.