Underlying U.S. inflation accelerated in July though the cost of tariff-exposed goods didn't rise as much as feared, boosting expectations that Federal Reserve officials will lower interest rates when they meet next month.

The core consumer price index, which excludes the often volatile food and energy categories, increased 0.3% from June, the strongest pace since the start of the year, according to Bureau of Labor Statistics data out Tuesday. That was in line with economists' forecasts, as was the overall CPI on a monthly basis.

"Inflation was broadly in line with expectations as tariffs continue to be largely absorbed within profit margins," James Knightley, chief international economist at ING, said in a note. "This gives the Fed the room to respond to the weaker jobs backdrop and cut

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