Inflation remained flat in July – but an underlying figure heated up in a sign that President Trump’s tariffs are starting to weigh on prices.

The Consumer Price Index rose 2.7% in July compared to the year before, remaining unchanged from June, the Labor Department said Tuesday.

But core CPI – which strips out volatile food and energy prices – ticked up to 3.1% year-over-year. That’s above expectations of a 3% pace and higher than its 2.9% reading from June.

The Dow Jones Industrial Average soared 483 points, or 1.1%, after economists noted that much of the gains were driven by services, not goods inflation. The Nasdaq and S&P 500 climbed more than 1%, finishing at record at highs.

It’s the first batch of data since Trump abruptly fired Bureau of Labor Statistics chief Erika McEntarfer following a dismal economic report that revealed the labor market has been weakening for months.

The president plans to nominate E.J. Antoni, a longtime critic of the Bureau of Labor Statistics and chief economist at the conservative Heritage Foundation, to run the department.

Large shifts in energy – including gasoline prices falling 9.5% over the year – have pulled down the overall figure, making the core reading a more accurate barometer of the economy. 

Household furnishings and toys, which are heavily impacted by tariffs, jumped 0.7% and 0.2%, respectively, in July.

Apparel increased 0.1%. It’s another tariff-sensitive category, as major textile manufacturers like Vietnam, India and China face hefty tariffs.

Prices for infant and toddler apparel rose 3.3% while footwear jumped 1.4%.

Airline fares increased 4%, though hotels and motels declined 1.3% and leased cars slipped 0.4%.

Food and new car prices remained flat from June, though used cars and trucks rose 0.5% in July.

Egg prices also continued to fall as the impacts of a nationwide bird flu eased, down 3.9% in July after plunging 7.4% in June. However, these prices are still up 16.4% compared to last year.

For months, US businesses have been bearing the brunt of Trump’s tariffs – taking around 64% of the hit, Goldman Sachs economists said in a report this week.

But July’s data signals that these firms may have reached a point of no return where they are forced to pass additional tax costs along to the consumer in the form of price hikes.

Major companies have warned of incoming price hikes on everything from luxury cars to everyday goods like toilet paper and razors due to multi-million and even billion-dollar tariff impacts.

Central bankers have said they are waiting to see the impacts of tariffs on inflation before making interest rate cuts – despite intense pressure and name-calling from the president, who has blasted “stupid” Fed Chair Jerome Powell.

The odds of a quarter-point cut at the Fed’s September meeting jumped to nearly 94% Tuesday, up from 86% the day before, according to 30-day Fed Funds futures prices tracked by CME FedWatch.

Analysts gave mixed reactions to Tuesday’s data, with some claiming the headline figure was tame enough to justify a September rate cut and others arguing the core figure came in too hot to change policy.

Now economists are looking ahead to CPI data and another jobs report both due in September.

“Those reports will take on even more importance as the Fed decides whether to cut rates to preemptively support the labor market or whether the inflation reports are concerning enough that they feel like they need to sit on their hands and wait,” Chris Zaccarelli, chief investment officer for Northlight Asset Management, said in a note Tuesday.