NEWS AND INSIGHTS | INSIGHTS

CIO Notebook: July CPI Hits the Mark

August 13, 2026
Shannon L. Saccocia, CFA, Chief Investment Officer—Wealth

Our outlook remains unchanged, and we believe the Fed will remain on hold for the remainder of the year.

U.S. core CPI for July was in line with expectations, up +0.2% month-over-month (MoM) and up +2.5% year-over-year (YoY); this marks the softest YoY print since the post-Covid surge which culminated in an aggressive Fed rate hiking cycle. Headline CPI was also in line, up +0.1% MoM and up +3.4% YoY, following a sharp drop in June of -0.4%.

The moderation in core CPI has been driven by the move lower in shelter prices over the past year. In July, both owners’ equivalent rent and rents increased by +0.3%, but the sharp decrease in lodging away from home (-2.8%), following the culmination of the World Cup, translated into an increase of only +0.1% for shelter broadly. Other areas of improvement during the month were motor vehicle insurance (-0.3%) and medical care commodities (-0.6%) while used cars (+0.4%), new cars (+0.1%), and airfares (+2.2%) were all higher.

Headline CPI in July benefitted from continued downward pressure in energy prices (-1.5%), as gasoline prices fell by -2.9% following a decline of -9.7% the month prior. Food at home prices also moderated during the month, down -0.1%, while food away from home accelerated modestly to +0.3% from +0.2%. Although admittedly volatile, one area of note was the +0.7% MoM increase in utility gas service; with growing resource needs to power AI, utility prices in our view are worth watching, especially given the non-discretionary nature of the spend.

The improvement in July CPI, combined with the light non-farm payrolls report last week, gives the Fed some breathing room as they look ahead to their meeting in Jackson Hole next week. While core CPI at +2.5% YoY remains above the Fed’s target, it is likely that PCE (the Fed’s preferred measure) could be closer to the target should this two-month trend persist. In addition, aside from airfares – which are up +25.5% YoY – there is little evidence that the ongoing Middle East conflict and coincident energy price volatility are passing through in a meaningful way to broader goods and services – at least for now. However, despite the improvement, costs over the past five years are significantly higher for the average U.S. consumer and wages are now growing at only +3.2% YoY – less than headline inflation. The pressure of higher prices, already felt at the pump and in the check-out line, will likely be further amplified over the next several months as affordability remains the hot button issue for voters in the upcoming midterm elections. We expect candidates from both sides of the aisle will be quick to lay blame on each other for the state of the economy.

The market response to today’s news was muted but as expected – Treasury yields fell modestly and equities moved higher. The probability of a Fed hike in September according to CME Fedwatch fell to 35% from 48% yesterday. More importantly, today’s release does little to change our views. We believe tariff pricing passthrough is largely behind us, energy will not be a meaningful driver of core inflation going forward, and shelter disinflation will continue to help drive core CPI closer to the 2% target. We believe the Fed will remain on hold for the remainder of the year, and, as such, are targeting moving from cash to short-to-intermediate term duration within fixed income; we are also maintaining an overweight in global equities.

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