US Inflation: First sign of inflation pass-through, one to keep an eye on

July inflation data showed the first evidence that tariffs are starting to flow through to prices but underlying leading indicators do not point to a large or sustained tariff impact. We continue to think upside surprises in inflation will be short-lived and won’t prevent the Fed from resuming its rate cuts.

Our leading indicator for headline CPI has rolled over, implying a 6-month forward estimate of 3.7%. Today’s release of the latest ISM Manufacturing survey also suggests the inflation rise will be a blip, with the prices paid index edging lower from last month and the respondents answer “higher prices” falling again.

Other leading indicators, such as NFIB and regional Fed surveys, remain below 2022 levels and are starting to roll over. (See our US Inflation chart collection for other key indicators.)

Stepping back, last month’s inflation data look in line with trends since 2024. In level terms, CPI components, PPI components, and import price data don’t look extreme (bottom two charts).

We’ll be watching these charts as data are released but think the bar is very high to prevent the Fed from cutting rates later this month.