CPI Surprise: Inflation Drops 0.4% | S3 E153 | 07-14-26

This week's June CPI report brought a surprise most analysts did not expect. Headline inflation fell 0.4% on a month over month basis, driven almost entirely by a sharp drop in energy and commodity prices. On a year over year basis, headline inflation is still running at 3.5%, but that's down meaningfully from 4.2% a year ago.

The timing matters. The Fed's new chairman is testifying before Congress this week, and his prepared remarks stayed hawkish on inflation even as this report showed real progress. Megan breaks down why cooler energy prices, calmer core inflation, and a still cautious Fed leave August rate hike expectations off the table for now, and why tensions in the Middle East could bring volatility back to inflation data in the months ahead.

Megan covers:
 📉 Why June's 0.4% CPI decline caught most analysts off guard
 📊 How core inflation cooled to 2.6% year over year, down from 2.9%
 🛢️ What falling energy services costs and easing core services really signal
 🏛️ Why the new Fed chair's hawkish testimony didn't budge despite the good news
 📅 Why an August rate hike now looks off the table
 ⚠️ How tensions around the Strait of Hormuz could still stir inflation volatility

If you're trying to make sense of what today's inflation data means for your money, tune in for the full breakdown and subscribe for tomorrow's update on the producer price index.

For a history of all Markets with Megan episodes, visit: https://marketswithmegan.FM

 #CPIReport #Inflation #FederalReserve #InterestRates #CoreInflation #StockMarket #EconomicData #MarketsWithMegan #FedTestimony #OilPrices 

https://youtu.be/whHRp2cnMuk

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Transcript

Welcome And How To Subscribe

Megan Horneman 0:00

The Fed got some really good news today. It's Tuesday, July the 14th, and this is Markets with Megan. If you like this podcast, you can subscribe to it. There's an alarm bell you can hit at the bottom, or you can share it with your friends, family, colleagues, anybody who may be interested in that economic data that we receive every day, specifically what the headlines tell you and what we really see in the underlying data.

June CPI Prints A Surprise Drop

Megan Horneman 0:22

Well, this morning we relieved the June we received the June reading on consumer price index. So this is the inflation reading specifically at the consumer level. And this was a shocking report. We've had inflationary pressures for the past few months because of the turmoil in the Middle East, and we actually saw headline inflation decline for the first time in 2020. Now, most analysts had expected some weakness at the headline level because we had such a massive drop in commodity prices during the month, but a 0.4% decline on a month-over-month basis was surprising. At the headline level, though, inflation is still rising 3.5% on a year-over-year basis, but that is better than the 4.2% last year. As I mentioned, the headline level was all driven by the energy and commodities. Every single one of those energy commodity components declined. And when you look at energy services, and this is really it really hits households as well, that actually fell the most since 2023. So good news there from the commodity

Core And Super Core Details

Megan Horneman 1:27

standpoint. At the core level, inflation was actually flat, and that was better than expected. It's actually rising now 2.6% on a year-over-year basis versus 2.9%. So still not at the Fed's target, but much better than it was anticipated. What's even better is when you look at the super core service which is the services index, excluding housing, that actually dropped. It actually declined. So that's good news for the Federal Reserve. The declines we saw were led by transportation, apparel, education, and communication. And then there was some modest upticks in food, airline fares, recreation, and that owner's equivalent rent component, but not as bad as we've seen in prior

Fed Testimony And Rate Hike Talk

Megan Horneman 2:12

months. This is good news for the Federal Reserve. The new chairman is testifying to Congress today and tomorrow. This is part of their semi-annual testimony that they do. This morning, their pre-release statements continue to mention their hawkishness towards inflation. In fact, they mentioned that they have no tolerance on the elevated inflation. They'll do everything they can to create price stability and that they did mention that it'll be the past five years will be a thing of the past when they when they can tackle this. So I don't think this report obviously will make the Fed make any changes to monetary policy in the very near term. There was some expectations that they might raise rates as early as the August meeting. I think that's off the table for now.

PPI Preview Plus Geopolitical Risks

Megan Horneman 2:56

Tomorrow we'll get the product producer price index and we will come back and give you some details about that. That's the component inflation, um, the inflation component of all of the different goods and services that are produced. So that's important because that does sometimes have a leading impact on these consumer prices. The only other negative side, we're gonna take this report as good news for right now. It doesn't mean the Fed needs to raise rates, but we are looking at the turmoil intensifying again in the Middle East, and there's no real movement in that straight of Hormuz. So there's gonna be a lot of volatility in the coming months around inflation data.

Yields Fall Stocks Rebound Earnings Begin

Megan Horneman 3:34

The markets like this report, um, yields on the treasury market across the curve all fell. As a result, we saw things like the S P 500 and the NASDAQ rebound. They like lower yields. We are seeing the Dow Jones relatively flat. And don't forget that we are in the midst of the kickoff this week of earnings season. So there's not much this week aside from the financials, but there is a lot in the next couple weeks that we can come back and give you some details

What We Watch Next

Megan Horneman 4:00

about. That's all we have today. Again, we'll be back tomorrow with information about the producer price index. And if you want a history of our podcast, you go to marketswithmegan.fm. Thank you.