The July consumer price index report, due out today, is expected to show that annual inflation cooled to 3.4 percent, marking a further step down from June’s 3.5 percent reading and continuing a disinflationary trend that began after May’s 4.2 percent spike.
Economists are forecasting a modest 0.1 percent monthly increase in headline CPI for July, according to forecasts from Kiplinger and Morningstar, as moderating gasoline prices help ease overall price pressures across the economy.
Core inflation, which strips out volatile food and energy costs, is expected to rise 0.2 percent month-over-month and hold at 2.5 percent on an annual basis, according to Kiplinger and Morningstar forecasts. This slower core pace reflects moderating price increases in services and goods after earlier volatility.
The decline in headline inflation is being driven primarily by easing gasoline prices. Energy costs surged earlier in 2026, with gasoline up 26.7 percent year-over-year in June before prices retreated, according to data from the Bureau of Labor Statistics. Reuters reported that US consumer prices likely increased moderately in July as gasoline prices eased, reducing the drag on the broader inflation index.
The expected 3.4 percent annual rate represents meaningful progress toward price stability, though it remains above the Federal Reserve’s long-term 2 percent target. The Fed held its key interest rate steady at 3.5 to 3.75 percent in its July meeting, signaling a pause in policy adjustments as officials monitor the inflation trajectory, according to CNBC reporting on the July Fed decision.
Inflation expectations among consumers have also begun to soften. The New York Fed reported in early August that median inflation expectations at the one-year-ahead horizon decreased by 0.1 percentage point to 3.6 percent in July, suggesting that households are becoming more confident that price pressures will moderate going forward.
The trajectory from May’s 4.2 percent reading through June’s 3.5 percent and the expected July 3.4 percent represents a sharp reversal from the first half of 2026, when energy shocks and supply-chain pressures pushed inflation higher. The continued moderation in the CPI report today would reinforce the view that inflation is on a sustainable downward path, even as it remains above the Fed’s target and continues to influence decisions on borrowing costs and economic policy.
Mortgage rates have held near one-year highs as inflation pressures persist, with rates sitting at 6.69 percent as of early August, according to recent data. The CPI report today could influence the trajectory of those rates if the inflation reading significantly surprises markets in either direction.
Sources
- CNBC — inflation expectations, July 2026 Fed decision to hold rates
- Kiplinger — July 2026 CPI forecast of 0.1% monthly, 3.4% annual, core CPI expectations
- Morningstar — July 2026 CPI forecast and core CPI outlook
- U.S. News & World Report — economist forecasts for July CPI at 3.4%, down from 3.5% in June
- Reuters — July consumer prices and gasoline price moderation
- Bureau of Labor Statistics — June CPI data, gasoline price year-over-year change
- New York Federal Reserve — July 2026 consumer inflation expectations survey
