NEWS AND INSIGHTS | INSIGHTS

CIO Notebook: Lower Services Inflation Delivers Welcome Core CPI Surprise

July 15, 2025
Shannon Saccocia, CFA, Chief Investment Officer - Wealth

While this print will likely do little to change the very low probability of a July rate cut, today’s report marks the first of three inflation readings the Fed will have in hand by the time they meet in September.

U.S. Core CPI was lighter than expected for the fifth straight month as slowing services inflation helped to offset higher goods prices; the measure was up +0.2% month-over-month (MoM) and +2.9% year-over-year (YoY) versus consensus expectations for +0.3% and +2.9%, respectively. Headline CPI was up +0.3% MoM and +2.7% YoY, essentially in line with expectations for +0.3% and +2.6%.

Drilling down into the services data, shelter prices rose by only +0.2% MoM, marking the slowest monthly increase in the measure since February 2021. Rents were up +0.2%, while owners’ equivalent rent was up +0.3%. Another repeat offender, motor vehicle insurance was up only +0.1% in June, following a sharp increase of +0.7% in May. Airline fares were pressured lower once again, down -0.1% on a monthly basis, while lodging away from home posted a whopping -3.6% decline. However, there were some areas of reacceleration -- the most notable was medical care services which were up +0.6% on a sharp increase in hospital services prices.

Taking a closer look at the drivers of headline CPI, energy prices were modestly higher in the month, with fuel oil and gasoline up +1.3% and +1.0%, respectively. Food away from home was up +0.4%, while food at home was up +0.3% despite declines in most categories; fruits and vegetables and nonalcoholic beverage prices shot higher. Auto prices continue to trend lower, with new vehicle prices off -0.3% and used cars off -0.7% in June. Likely reflecting tariff impacts, household furnishings (including window coverings, furniture, and appliances), apparel, and recreation were all higher in the month. In our view, these are worth watching as pre-tariff inventories are drawn down and shelves are stocked with goods imported post Liberation Day.

U.S. equity futures were higher on the announcement, while Treasury yields moved lower across the curve. Today’s announcement did little to change the probability of a July rate cut, which has moved close to zero over the past several days and increased modestly the likelihood that the Fed cuts rates by 25 basis points in their September meeting. Today’s report marks the first of three inflation readings the Fed will have in hand by the time they meet in September, and while there are some signs of tariff induced goods inflation in today’s report, there is little in the details of this report that is likely to change the hearts and minds of the FOMC. Attention now shifts to earnings season, which kicked off in earnest yesterday, and a flurry of economic data releases – U.S. PPI, retail sales, and University of Michigan Consumer Sentiment – which are likely to add to this increasingly nuanced narrative.

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