US inflation likely rose slightly in July as data quality concerns deepen

US consumer prices are expected to have increased only marginally in July, but rising costs for tariff-hit goods such as household furniture and apparel could push underlying inflation to its largest gain in six months. According to Reuters, the Labour Department’s Consumer Price Index (CPI) data which is due on Tuesday, comes amid mounting concerns over the reliability of official inflation and jobs statistics. Budget and staffing cuts at the Bureau of Labor Statistics (BLS) have forced the suspension of price collection in parts of the country, with missing data now filled in using statistical models.

Tariffs, deportations, and price pressures

The Reuters poll of economists shows the CPI likely rose 0.2 per cent in July, easing from June’s 0.3 per cent increase. Falling gasoline prices likely offset some of the gains from higher food costs. Analysts say labour shortages in agriculture,driven by President Donald Trump’s stepped-up deportations of undocumented migrants and import tariffs are keeping food prices elevated.

Over the past 12 months, the CPI is forecast to have risen 2.8 per cent, compared with 2.7 per cent in June. Stripping out food and energy, the so-called core CPI is expected to have climbed 0.3 per cent month-on-month, the sharpest rise since January, Jason Pride, chief of investment strategy at Glenmede, told Reuters that consumers have so far absorbed about one-third of the tariff burden. But as pre-tariff inventories run down, companies may pass more costs onto households in the coming months.

Fed rate cut speculation builds

The Federal Reserve uses different inflation measures for its 2 per cent target. July’s CPI reading, if in line with forecasts, is unlikely to derail market expectations that the US central bank could resume cutting interest rates in September, after holding the benchmark rate at 4.25–4.50 per cent for five consecutive meetings.

Data integrity under scrutiny

Concerns over data quality intensified after Trump fired BLS Commissioner Erika McEntarfer earlier this month, following a dismal July jobs report that showed stall-speed employment growth and large downward revisions to earlier payroll data.

The BLS has now fully halted CPI data collection in one city each in Nebraska, Utah, and New York, and suspended 15 per cent of sampling in other regions. Missing prices are increasingly filled through “different cell imputation," where data from other geographical areas is substituted,rather than “home cell” estimates from the same location.

The share of CPI data based on such imputations surged to 35 per cent in June from just 8 per cent a year earlier. Economists warn that while these methods may not create bias, they do increase volatility and reliance on statistical assumptions over actual observed prices.

Michael Gapen, chief US economist at Morgan Stanley, told Reuters: “A growing share of imputations in CPI means a larger portion of inflation is driven by models, assumptions, and estimates instead of sampling actual prices. Investors are right to have concerns.”

(With inputs from the agencies)