June inflation cools - but for how long?

Investment Analysis Clubs Macro Economic Trends and Risks
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This chart shows seasonally-adjusted year-over-year changes. The non-seasonally adjusted data is what consumers experience at the register and is used for things like TIPS and cost-of-living adjustments.

Consumer Price Index News Release

Transmission of material in this release is embargoed until                                        
8:30 a.m. (ET) Tuesday, July 14, 2026 

CONSUMER PRICE INDEX - JUNE 2026

The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.4 percent on a seasonally adjusted basis in June 
after rising 0.5 percent in May, the U.S. Bureau of Labor Statistics reported today. This decline in the all items 
index was the largest 1-month decrease since April 2020 when it fell 0.8 percent. Over the last 12 months, the all 
items index increased 3.5 percent before seasonal adjustment.

The index for energy fell 5.7 percent in June

The index for all items less food and energy was unchanged in June.

[end quote - lots of detail at the link]

As a result of today’s report, the Cleveland Fed’s forecast for 3Q26 inflation has plunged. This may be premature since the drop in inflation was largely due to the fall in oil prices as the market anticipated the opening of the Strait of Hormuz – which looks like it’s not happening.

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Time will tell. The consensus is that inflation has been caused by tariffs, war and the artificial-intelligence build-out. The war in Iran appears to be heating up again.

The news reports don’t mention the government deficit spending that is putting money in consumer pockets (thus driving CPI). Spending in 2026 has increased by $172 billion over the same period in 2025, propelled by higher entitlement spending (Social Security and Medicare) and escalating interest payments on the national debt. Fiscal policy analysts project that the U.S. is currently on track to hit or surpass a $2 trillion total deficit by the time the fiscal year closes at the end of September. This compares with a deficit of $1.775 in FY2025.

The new Fed Chair Kevin Warsh will tell Congress today that the Fed’s job is to quash inflation and will stress productivity growth. I think the forces driving inflation haven’t receded and that inflation will resurge later.

Also worth reading…

Wendy

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Massive swing on FedWatch.

July forecast was close to 50/50 (not that I believed it) for a rate increase.

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Supporting your theory that this is temporary is the fact that the September numbers have actually increased slightly:

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Economist Paul Krugman pointed out that the inflation swings are heavily influenced by the price of refined gasoline and diesel…and that the Ukrainians are systematically destroying Russian refineries with drone strikes.

Wendy

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Fedwatch (which remember has real money on the futures/contracts behind it) is still showing a good probability of a rate hike this year. That’s after the moderating inflation data this morning. Seems like the people don’t quite believe the inflation monster has been slain.

81.2% chance of a hike by Dec meeting.
68.7% by Oct meeting.
59.8% by Sep meeting.

These are still pretty high.

[NOTE: I put this in a reply to an older post, but now that I see this post, it makes more sense to put it here.]

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Which leads us to the concept of ‘core inflation’ which was flat in June and dropped to 2.6% for the past year (a decrease from 2.9% in May).

DB2

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The Fed pays a lot of attention to core inflation (as if people don’t need food and fuel). But TIPS are adjusted by raw CPI, not core and not seasonally adjusted. As a TIPS owner, that makes a difference to me.
Wendy

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I also consume food and energy.

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The powers that be are trying in every way possible to avoid an oil glut.

We have war with Iran. Oil is only $80 in NY. The oil has found other ways to market. We need less oil.

We have economic declines around the world.

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Of course people need food and fuel. As you probably know, the Fed looks at core inflation in an attempt to reduce the noise in the macro signal.

DB2

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Indeed. If oil prices stay high however, ultimately they raise the price of everything else. For example, in the form of transportation costs.

A lot of it will come down to how soon the US admits it lost the war with Iran and walks away.

Edit: I originally used the example of food prices, but that’s not part of core inflation.

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