Underlying US inflation hit a five-month high in July as prices for services, medical products and airfares rose sharply, prompting President Trump to dismiss accusations that tariffs have already pushed the cost of living higher for families.

Prices for core goods and services increased by 3.1 per cent in the year to July, up from June’s rise of 2.9 per cent, according to figures published by the US Bureau of Labor Statistics (BLS) on Tuesday.

On a monthly basis, core prices, which are closely watched by the US Federal Reserve, rose by 0.3 per cent last month, up from June’s rise of 0.2 per cent. Annual headline inflation was unchanged at 2.7 per cent in July, below expectations of a rise to 2.8 per cent. On a monthly basis, headline prices increased by 0.2 per cent, the same as June and in line with forecasts.

A large proportion of the core inflation overshoot was driven by rapidly rising services prices, which signalled that US inflation could become more widespread if goods and services prices accelerate further in the coming months following the imposition of Trump’s tariffs.

According to the BLS, the price of medical care rose by 0.7 per cent in the month to July. Airfares were up 4 per cent, dental appointments increased by 2.6 per cent and second-hand car and truck prices rose by 0.5 per cent over the past month.

Elsewhere within the data release, there was little sign that the price of products hit by import levies had accelerated. Clothing prices rose by just 0.1 per cent in the month to July, and the cost of a new car was unchanged.

Samuel Tombs, chief US economist at Pantheon Macroeconomics, a consultancy, said: “We doubt, however, that auto retailers will continue to absorb all of the costs of the new tariffs, and expect apparel prices to jump over the next two months.”

In a post on Truth Social, the President said: “It has been proven, that even at this late stage, Tariffs have not caused Inflation, or any other problems for America, other than massive amounts of CASH pouring into our Treasury’s coffers.”

In early trading on Wall Street, the Dow Jones industrial average rose by more than 1 per cent and the both the S&P 500 and the technology-heavy Nasdaq were at record intraday highs.

Earlier this month, Trump fired Erika McEntarfer, the head of the US Bureau of Labor Statistics, after he claimed that the statistics agency had released “rigged” labour market figures that did not accurately reflect the underlying strength of the US economy since he entered the White House.

Although Trump has reversed some of the more onerous elements of his tariff policies after striking deals with various countries to implement less punitive import levies, the effective US tariff rate has climbed to its highest level in a century.

Economists tend to see tariffs as a tax on consumers because they can motivate businesses to increase the price of their goods to offset the cost of paying the import levy. This thinking has led to predictions of the Fed not cutting interest rates at all this year from their present range of 4.25 per cent to 4.5 per cent, and of a possible US recession.

The Trump administration sees tariffs as a means of boosting government revenues to fund tax cuts and incentivise multi-national companies to increase their production presence in America so as to avoid paying the tariffs. Several high-profile technology companies, such as Apple and Nvidia, have announced substantial investment projects in the US since Trump returned to the White House.

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Analysts said that it was unclear whether the Fed would cut interest rates at its next meeting in September after the release of July inflation numbers.

Stephen Brown, deputy chief North America economist at Capital Economics, a consultancy, said: “Given we still have another set of price data and another employment report before the Fed’s next meeting, the Fed’s September rate decision is not yet a done deal.”

He added that markets are “overestimating the degree of loosening to come over the next 18 months”.

Others said that weakness in the labour market could force the Fed to cut rates on September 17.

The American inflation figures reinforced concerns that Britain has a deeper inflation problem compared to its international peers. UK inflation rose to 3.6 per cent in June, an 18-month high, and the Bank of England has warned it will hit 4 per cent in September. Eurozone inflation has held steady at 2 per cent for the past two months, in line with the European Central Bank’s target.

The dollar index, which measures the greenback against six comparable currencies, fell by 0.15 per cent.