Prior was 4.2%CPI m/m -0.4% vs -0.1% expPrior CPI was +0.5%Unrounded -0.349%
Core readings:
Core y/y 2.6% vs 2.8% expectedPrior core was 2.9%Core m/m 0.0% vs +0.2% expectedPrior m/m +0.2%Unrounded +0.011%
Ahead of the report, Fed funfds futures were pricing in 9.2 bps of hikes at the July 29 meeting and 41 bps for year end. After the report, those numbers have fallen sharply, though the market is also sorting through the comments from Warsh. July now prices at 3.9 bps and Dec at 32.7 bps.
The energy index fell 5.7% in July after a 3.9% rise in May and that was the largest contributor to the overall decline.
Key sub-components:
Owners’ equivalent rent: +0.2%Rent of primary residence: +0.1%Motor vehicle insurance: -2.0% (after -1.7% in May)Airfares: +0.2% m/m, still +26.5% y/yUsed cars: -0.2%Apparel: -0.6%Medical care: -0.1%Lodging away from home: -2.3%Energy m/m: -5.7% (largest drop since April 2020)Gasoline m/m: -9.7%Shelter m/m: +0.1% (smallest since January 2021)Food m/m: +0.2%
On the core reading, flat on the month is the softest reading since January 2021. Shelter rose just 0.1% — also the smallest since January 2021. OER at +0.2% and rent at +0.1% suggest the soft housing market is working its way through. The surprise might be motor vehicle insurance falling 2.0% for a second straight month of declines.
The hot spots weren’t all encouraging. Recreation +0.5%, household furnishings +0.2% and some goods categories still showing tariff residue, but commodities ex-food-and-energy fell 0.1% on the month and are up just 0.8% y/y.
For the Fed, this cracks the door wide open. The March-May inflation scare was always an energy story wearing a core costume, and June strips the costume off. With headline set to fall further on July gasoline and shelter finally rolling over, the FOMC has cover to look through the 3.5% y/y print and focus on the 2.6% core trend — which is now decelerating again after the spring stall. The problem now is that the war has restarted and oil is up another 2.25% today and more than 10% in a week. Gasoline prices have also been kept high by a tight refining market so I’m not sure how much more deflation (if any) is coming.
One caveat on the data itself: the October and November 2025 gaps from the appropriations lapse are still muddying the seasonal factors, so take the month-to-month precision with a grain of salt. The direction, though, is unmistakable.
This article was written by Adam Button at investinglive.com.