Inflation expected to cool slightly in July report as issue becomes key issue in presidential campaign

A closely-watched inflation report is due to be released Wednesday morning and is expected to show that inflation has continued to ease as the issue comes to the forefront of the presidential race and the Federal Reserve eyes a potential interest rate cut as soon as next month.

Economists expect the consumer price index (CPI) – which measures a range of goods including gasoline, health care, groceries and rent – to show that prices rose 2.9% year-over-year, according to a consensus forecast by Trading Economics. That would be down slightly from the 3.0% inflation reading in June, though analysts at Trading Economics see inflation holding steady at 3.0%.

On a monthly basis, inflation is seen rising slightly by 0.2% after it fell by 0.1% in June. Core inflation, which excludes volatile food and gasoline prices, is expected to cool slightly to 3.2% year-over-year based on the consensus forecast.

Those figures are above the Federal Reserve's target rate of 2%. However, Fed Chair Jerome Powell has signaled that the central bank may move to cut interest rates before inflation falls to that level if data like Wednesday's inflation report shows the cooling trend is continuing.

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Powell said in remarks last month at the Economic Club of Washington D.C. that waiting for inflation to reach 2% could result in an excessive tightening of economic activity that leads to policymakers overshooting their target.

"The implication of that is that if you wait until inflation gets all the way down to 2%, you've probably waited too long, because the tightening that you're doing, or the level of tightness that you have, is still having effects which will probably drive inflation below 2%," he explained.

"We want to have greater confidence that inflation is moving sustainably down toward our 2% target. What increases that is more good inflation data. And lately, we have been getting some of that," Powell said at the time.

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Inflation began to surge in early 2021 amid pandemic-related supply chain disruptions and a historic influx of federal spending. It peaked at a 40-year high of 9.1% in June 2022, and the Fed raised the benchmark federal funds rate to a 23-year-high range of 5.25% to 5.50% to tamp down inflation. Rates have remained unchanged at that level since last July.

The inflation report and the Fed's highly anticipated decision next month on a potential interest rate cut come as inflation's economic impact has become a pivotal issue in the presidential race.

Former President Trump said in a discussion on X Spaces with billionaire entrepreneur Elon Musk on Monday that voters are frustrated with the Biden-Harris administration's handling of the issue.

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"The thing that really is making them angry is what Kamala and Biden have allowed to happen with the economy. It's a disaster with inflation," Trump said. The inflation – it doesn't matter what you make – the inflation is eating you alive. If you're a worker, or if you're just a middle-income person you can't afford – you know, four years ago, five years ago, people were saving a lot of money. Today, they used up all their money and are borrowing money just to live."

Musk noted that, "A lot of people are concerned about the economy, a lot of people are concerned about inflation. And inflation is effectively a tax on people that save money and for people that are working day-to-day, it's just a form of taxation. And if we can solve the government spending problem, we'll solve the inflation problem, which means people will have a better standard of living."

Vice President Harris is expected to outline her plan to address inflation and lower costs this week and said at a rally last week in Detroit that prices are still too high, while placing the blame on companies for the high costs facing American consumers.

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"We believe in a future where we lower the cost of living for America's families so they have a chance not just to get by but to get ahead. Because, look, while our economy is doing well by many measures, prices for everyday things like groceries are still too high. You know it, and I know it," Harris said.

"When I was attorney general, I went after price-fixing schemes. And when I am president, it will be my day one priority to fight to bring down prices; to take on the big corporations that engage in illegal price gouging; take on corporate landlords that unfairly raise rents on working families; to take on Big Pharma and cap the cost of prescription drugs for all Americans," Harris said.

FOX Business' Megan Henney contributed to this report.