US CPI Report First Test For An Increasingly Hawkish Fed
- Headline annual rate seen moderating - Energy shock, sticky services back in focus - Shelter and ‘supercore’ key measures – analysts - Data due at 08:30 EST/12:30 GMT
Fed officials who backed a rate hike at July’s FOMC meeting argued that monetary policy was not restrictive enough to bring inflation back under control. Wednesday’s report from the Bureau of Labor Statistics may offer some indication of whether they were right.
Headline CPI is forecast to rebound 0.1% m/m in July following a 0.4% decline in June, while the annual rate is expected to ease a tenth to 3.4%. Core CPI is seen rising 0.2% m/m, with the year-on-year rate slipping to 2.5% from 2.6%.
Despite expectations for a firmer monthly core reading, Citi Research noted that core CPI has met or undershot consensus in 14 of the past 15 releases.
“Softness in June CPI was very broad-based and not a result of weakness in any particular component. For this reason, it is harder to see a clear driver of a stronger bounce-back in July,” said the bank.
The Middle East crisis has dominated energy markets since the start of Q2 and remains a major swing factor for headline inflation. Following the collapse of the ceasefire, crude prices surged more than 20% in July.
More recently, US President Donald Trump has said he is prepared to play the “long game” against Iran, favouring economic pressure over further military action.
Even so, traffic through the Gulf region remains below normal. Crude supply is not currently the main concern, but elevated, tighter refined-product costs have stayed tight.
On Tuesday, the Energy Information Administration said it had raised its estimate of Middle East shut-in crude production as “severe Strait of Hormuz transit constraints are assumed to persist through August.”
Goods, services and shelter
Beyond the headline numbers, investors will be watching the detail.
Analysts expect core goods inflation to remain subdued, while core services are likely to rebound towards more normal levels following June’s decline.
Citi said one closely watched component could be “computers, peripherals, and smart home assistants” after several large computer price increases were announced in late June for immediate implementation.
Shelter costs will again be important. The index has continued to soften alongside the longer-running slowdown in house prices and market rents, something Citi described as a “very important part of slowing in overall core inflation.”
The super-core measure — core services excluding shelter — will also be closely watched.
BNY strategists John Velis and David Tam said ahead of the July FOMC meeting that elevated super-core inflation complicated the outlook and remained one of the strongest arguments for another rate hike. They noted that since mid-2023, the measure has been running almost a percentage point above its pre-COVID pace.
Fed hawks looking for confirmation
Price stability is one half of the Fed’s dual mandate, and new Chairman Kevin Warsh has made clear that returning inflation to target remains a priority.
Three of the 12 FOMC voters backed a 25-basis-point hike in July: Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan. Their concerns went beyond the latest energy shock or the impact of earlier tariffs. The bigger issue was that inflation had proved more persistent than Fed economists expected.
Logan, in particular, has argued that inflation remains too high and appears headed towards the mid-2% range rather than sustainably back to the Fed’s 2% target.
A renewed pickup in July inflation would therefore strengthen the hand of the Committee’s hawkish minority ahead of September’s meeting.
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- Headline annual rate seen moderating
- Energy shock, sticky services back in focus
- Shelter and ‘supercore’ key measures – analysts
- Data due at 08:30 EST/12:30 GMT
By Harry Daniels
LiveSquawk News
@HarryDaniels71
16:00 GMT | 11 August 2026
Fed officials who backed a rate hike at July’s FOMC meeting argued that monetary policy was not restrictive enough to bring inflation back under control. Wednesday’s report from the Bureau of Labor Statistics may offer some indication of whether they were right.
Headline CPI is forecast to rebound 0.1% m/m in July following a 0.4% decline in June, while the annual rate is expected to ease a tenth to 3.4%. Core CPI is seen rising 0.2% m/m, with the year-on-year rate slipping to 2.5% from 2.6%.
Despite expectations for a firmer monthly core reading, Citi Research noted that core CPI has met or undershot consensus in 14 of the past 15 releases.
“Softness in June CPI was very broad-based and not a result of weakness in any particular component. For this reason, it is harder to see a clear driver of a stronger bounce-back in July,” said the bank.
The Middle East crisis has dominated energy markets since the start of Q2 and remains a major swing factor for headline inflation. Following the collapse of the ceasefire, crude prices surged more than 20% in July.
More recently, US President Donald Trump has said he is prepared to play the “long game” against Iran, favouring economic pressure over further military action.
Even so, traffic through the Gulf region remains below normal. Crude supply is not currently the main concern, but elevated, tighter refined-product costs have stayed tight.
On Tuesday, the Energy Information Administration said it had raised its estimate of Middle East shut-in crude production as “severe Strait of Hormuz transit constraints are assumed to persist through August.”
Beyond the headline numbers, investors will be watching the detail.
Analysts expect core goods inflation to remain subdued, while core services are likely to rebound towards more normal levels following June’s decline.
Citi said one closely watched component could be “computers, peripherals, and smart home assistants” after several large computer price increases were announced in late June for immediate implementation.
Shelter costs will again be important. The index has continued to soften alongside the longer-running slowdown in house prices and market rents, something Citi described as a “very important part of slowing in overall core inflation.”
The super-core measure — core services excluding shelter — will also be closely watched.
BNY strategists John Velis and David Tam said ahead of the July FOMC meeting that elevated super-core inflation complicated the outlook and remained one of the strongest arguments for another rate hike. They noted that since mid-2023, the measure has been running almost a percentage point above its pre-COVID pace.
Price stability is one half of the Fed’s dual mandate, and new Chairman Kevin Warsh has made clear that returning inflation to target remains a priority.
Three of the 12 FOMC voters backed a 25-basis-point hike in July: Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan. Their concerns went beyond the latest energy shock or the impact of earlier tariffs. The bigger issue was that inflation had proved more persistent than Fed economists expected.
Logan, in particular, has argued that inflation remains too high and appears headed towards the mid-2% range rather than sustainably back to the Fed’s 2% target.
A renewed pickup in July inflation would therefore strengthen the hand of the Committee’s hawkish minority ahead of September’s meeting.