WASHINGTON (AP) — U.S. inflation was unchanged last month while a measure of underlying inflation rose to its highest level in five months, as tariffs have raised the cost of some imported goods while gas and procery prices cooled.

Consumer prices rose 2.7% in July from a year earlier, the Labor Department said Tuesday, the same as the previous month and up from a post-pandemic low of 2.3% in April. Excluding the volatile food and energy categories, core prices rose 3.1%, up from 2.9% in June.

The figures suggest that slowing cost growth for rents and cheaper gas are offsetting some of the impact of President Donald Trump’s sweeping tariffs. Tuesday’s figures likely reflect the 10% universal tariff Trump imposed in April, as well as higher duties on countries such as China and Canada.

Still, stubbornly high inflation puts the Federal Reserve in a difficult spot: Hiring slowed sharply in the spring, after Trump announced tariffs in April. The stalling out of job gains has boosted financial market expectations for an interest rate cut by the central bank.

Yet Fed chair Jerome Powell has warned that worsening inflation could keep the Fed on the sidelines — a stance that has enraged Trump, who has defied traditional norms of central bank independence and demanded lower borrowing costs.

Tuesday’s data arrives at a highly-charged moment for the Labor Department’s Bureau of Labor Statistics, which collects and publishes the inflation data. Trump fired Erika McEntarfer, then the head of BLS, after the Aug. 1 jobs report also showed sharply lower hiring for May and June than had previously been reported.

The president posted on social media Monday that he has picked E.J. Antoni, an economist at the conservative Heritage Foundation and a frequent critic of the jobs report, to replace McEntarfer.

“E.J. will ensure that the Numbers released are HONEST and ACCURATE,” Trump said on Truth Social.

Adding to the BLS’s turmoil is a government-wide hiring freeze that has forced it to cut back on the amount of data it collects for each inflation report, the agency has said. UBS economist Alan Detmeister estimates that BLS is now collecting about 18% fewer price quotes for the inflation report than it did a few months ago. He thinks the report will produce more volatile results, though averaged out over time, still reliable.

On a monthly basis, prices are expected to rise modestly, increasing just 0.2% from June to July and core prices rising 0.3%. Gas prices likely fell in July and grocery costs are expected to barely increase, muting overall inflation.

Signs of duties pushing up prices first emerged in the June inflation report released last month. Toy prices jumped 1.8% from May to June, after a 1.3% increase the previous month. Clothing prices rose 0.4% in June, while sporting goods leapt 1.8%.

Meanwhile, the average tariff level has climbed from about 2% before Trump’s inauguration to nearly 18%, the highest since the early 1930s, according to the Budget Lab at Yale. Most imports from the European Union and Japan now face duties of 15%, while goods from Taiwan pay 20% and Switzerland, 39%.

Other trends are helping keep inflation from rising more quickly. Price increases for apartment rents, for example, are steadily cooling after sharp spikes during the pandemic era. And prices for new cars have declined slightly in recent months, even after Trump slapped 25% duties on autos and auto parts.

So far, U.S. and overseas carmakers are paying the tariffs, though economists say they likely will pass them on to consumers soon. Car companies are also paying 50% import taxes on steel and aluminum and 30% on parts from China.

Ford has said it paid $800 million in tariffs in the second quarter, while General Motors shouldered $1.1 billion. Stellantis, the world’s fourth-largest carmaker and the maker of brands such as Chrysler, Dodge, and Jeep, has said it has paid $350 million in tariffs out of a $1.7 billion expected cost this year.

Consumers are likely to absorb more costs beyond the auto industry in the coming months, as Trump has begun to finalize many tariffs. Once businesses know what they will be paying, they are more likely to pass those costs to consumers, economists say.

Trump has insisted that overseas manufacturers will pay the tariffs by reducing their prices to offset the duties. Yet the pre-tariff prices of imports haven’t fallen much since the levies were put in place.

Economists at Goldman Sachs estimate that foreign manufacturers have absorbed just 14% of the duties through June, while 22% has been paid by consumers and 64% by U.S. companies. Based on previous patterns, however — such as Trump’s 2018 duties on washing machines — the economists expect that by this fall consumers will bear 67% of the burden, while foreign exporters pay 25% and U.S. companies handle just 8%.

Many large firms are still raising prices in response to the tariffs, including apparel makers Ralph Lauren and Under Armour, and eyewear company Warby Parker.

Consumer products giant Procter & Gamble, maker of Crest toothpaste, Tide detergent and Charmin toilet paper, said late last month that it would lift prices on about a quarter of its products by mid-single-digit percentages.

And cosmetics maker e.l.f. Beauty, which makes a majority of its products in China, said on Wednesday that it had raised prices by a dollar on its entire product assortment as of Aug. 1 because of tariff costs, the third price hike in its 21-year history.

“We tend to lead and then we will see how many more kind of follow us,” CEO Tarang Amin said on an earnings call Wednesday.

Matt Pavich, CEO of Revionics, a company that provides AI tools to large retailers to help them evaluate pricing decisions, says many companies are raising prices selectively to offset tariffs, rather than across the board.

“Up until now we haven’t seen a massive hit to consumers in retail prices,” Pavich said. “Now, they are going up, we’ve seen that.”

This story was originally featured on Fortune.com

© Manuel Balce Ceneta—AP Photo

President Donald Trump said Thursday he will nominate a top economic adviser to the Federal Reserve’s board of governors for four months, temporarily filling a vacancy while continuing his search for a longer-term appointment.

Trump said he has named Stephen Miran, the chair of the White House’s Council of Economic Advisers, to fill a seat vacated by governor Adriana Kugler, a Biden appointee who is stepping down Friday. Miran, if approved by the Senate, will serve until January 31, 2026.

The appointment is Trump’s first opportunity to exert more control over the Fed, one of the few remaining independent federal agencies. Trump has relentlessly criticized the current chair, Jerome Powell, for keeping short-term interest rates unchanged, calling him “a stubborn MORON” last week on social media.

Miran has been a major defender of Trump’s income tax cuts and tariff hikes, arguing that the combination will generate enough economic growth to reduce budget deficits. He also has played down the risk of Trump’s tariffs generating higher inflation, a major source of concern for Powell.

The choice of Miran may heighten concerns about political influence over the Fed, which has traditionally been insulated from day-to-day politics. Fed independence is generally seen as key to ensuring that it can take difficult steps to combat inflation, such as raising interest rates, that politicians might be unwilling to take.

Federal Reserve governors vote on all the central bank’s interest-rate decisions, as well as its financial regulatory policies.

Miran’s nomination, if approved, would add a near-certain vote in support of lower interest rates. Kugler had echoed Powell’s view that the Fed should keep rates unchanged and further evaluate the impact of tariffs on the economy before making any moves.

Trump has said he will appoint Fed officials who will cut interest rates, which he says will reduce the borrowing costs of the federal government’s huge $36 trillion debt pile. Trump also wants lower rates to boost moribund home sales, which have been held back partly by higher mortgage costs. Yet the Fed doesn’t directly set longer-term interest rates for things like home and car purchases.

At its most recent meeting last week, Fed officials kept their key rate unchanged at 4.3%, where it has stood after three rate cuts late last year. But two Fed governors — Christopher Waller and Michelle Bowman — dissented from that decision. Both were appointed by Trump in his first term.

Still, even with Miran on the board, 12 Fed officials vote on interest rate policy and many remain concerned that Trump’s sweeping tariffs could push inflation higher in the coming months.

Miran could be renominated to a longer term on the Fed once his initial appointment is concluded, or replaced by another nominee.

Powell’s term as chair ends in May 2026. Yet, Powell could remain on the board of governors until January 2028, even after he steps down as chair. That would deny, or at least delay, an opportunity for Trump to appoint an additional policymaker to the Fed’s board.

As a result, one option for Trump is to appoint Powell’s eventual replacement as chair to replace Kugler once the remaining four months of her term are completed. Leading candidates for that position include Kevin Warsh, a former Fed governor from 2006 to 2011 and frequent critic of Powell’s chairmanship, and Kevin Hassett, another top Trump economic adviser.

Another option for the White House next May would be to select Waller, who is already on the board, to replace Powell, and who has been widely mentioned as a candidate.

Marco Casiraghi, senior economist at investment bank Evercore ISI, noted that the choice of Miran could be a positive sign for Waller, because Trump did not take the opportunity to nominate someone likely to become chair once Powell steps down.

After the July jobs report was released last Friday, Miran criticized the Fed chair for not cutting benchmark interest rates, saying that Trump had been proven correct on inflation during his first term and would be again. The president has pressured Powell to cut short-term interest rates under the belief that his tariffs will not fuel higher inflationary pressures.

“What we’re seeing now in real time is a repetition once again of this pattern where the president will end up having been proven right,” Miran said on MSNBC. “And the Fed will, with a lag and probably quite too late, eventually catch up to the president’s view.”

Last year, Miran expressed support for some unconventional economic views in commentaries on the Fed and international economics.

Last November, he proposed measures that would reduce the value of the dollar in order to boost exports, reduce imports and cut the U.S. trade deficit, a top priority for Trump. He also suggested tariffs could push U.S. trading partners, such as the European Union and Japan, to accept a cheaper dollar as part of a “Mar-a-Lago Accord,” an echo of the Plaza Accord reached in the 1980s that lowered the dollar’s value.

As a fellow at the conservative Manhattan Institute, Miran in March 2024 also proposed overhauling the Fed’s governance, including by making it easier for a president to fire members of its board of governors.

“The Fed’s current governance has facilitated groupthink that has led to significant monetary-policy errors,” Miran wrote in a paper with Dan Katz, now a top official at the Treasury Department.

This story was originally featured on Fortune.com

© AP Photo/Alex Brandon, File