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July CPI: Benign Enough for Now

Published on August 12, 2026

Peter Williams

July CPI: Benign Enough for Now

July’s core CPI came in at 0.22% m/m sa, right in line with consensus expectations.
The market response of a small dovish updating seems largely the right one but with PPI tomorrow and a nearly full round of August data to come before the September meeting there is plenty of data still to come.
The labor market and strong growth and investment data are placing a high floor on rates, the question, at least for the foreseeable future, is if inflation will force the Fed to hike or not.

The composition of the data was fairly benign overall although from universally dovish. Rent and OER seem to be settling in near 2.5-3% after moving past shutdown related distortions over the fall and winter. Hotel pricing took a dip after a strong recent run, almost surely reflecting post- World Cup demand relief. Core goods ex used auto bounced back pretty sharply into positive territory after two negative months. With tariff-related pass-throughs largely but not entirely over (we also keep getting new tariffs) the questions are now how much and at what speed will Hormuz-related disruptions will pass-through into non-energy goods, how the AI boom is raising consumer electronics and durable goods prices, and where exactly is trend core goods inflation in a world where globalization isn’t the disinflationary force it long had been.

CPI’s measure of core services ex housing (quite different from the PCE one) snapped back from a negative print in June but remained fairly low at 0.19%. Core ex shelter and used autos actually had its second hottest print of the year back to a level would be considered very hot pre-covid but maybe benign enough now.

Food away from home, a part of headline CPI but core PCE, strengethened a bit on the month. I see this as a good simple measure of underlying inflationary pressures given the discretionary nature of the purchase and the impacts high salience prices like rent, food, and wages play in setting the economics of the businesses. Pre-covid it tended to bounce around just below 3%; recently its been bouncing between 3-4% and had shown some signs of disinflation in late 2025 and early 2026 but that seems to fading some. Our compositive measures of discretionary services inflation is running somewhat hot on a 12m basis, while its shown a lot of volatility and a bit of disinflation over the most recent period.

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