Economic Update 7/14/26

Top 5 Takeaways This Week

• June inflation came in well below expectations, with the Consumer Price Index declining 0.4% for the month.

• Lower energy prices were the primary driver of the decline in inflation.

• Core inflation remained subdued, showing no monthly increase during June.

• Inflation trends continue to move in a favorable direction, though additional data will be needed to confirm the trend.

• Our outlook remains constructive for both equities and fixed income as inflation pressures ease.

This morning, we saw the release of the much-anticipated Consumer Price Index (CPI). As a critical measurement of inflation, many investment models use this report in their decision-making process. The CPI for the month of June actually fell by 0.4%. This showed a sharp reversal from the May increase of 0.5%. This also represents the first monthly decline since May of 2020.

Not surprisingly, the decline last month was primarily due to energy costs falling by 5.7%. Apparel and medical costs were also lower during June.  On a year-over-year basis, the CPI was up 3.5% last month. This was well below the rise of 4.2% during May and was the first decline in five months. Obviously, lower energy costs were again a primary contributor to the lower inflationary level. However, we also saw declines in shelter and food costs during this period.

Core CPI

The core CPI, excluding food and energy, was actually flat for the month of June. This compares favorably to the 0.2% rise during May. It is also the first flat month since January of 2021. The annual core inflation level was 2.6% last month and was significantly lower than the May reading of 2.9%.

Taken in total, the above numbers show a good trend toward lower inflation. However, given that this only represents one month's movement, we will need to follow future releases to evaluate the continuing impact of various factors. 

Key Variables to Watch

Without question, a key variable is the ongoing confrontation between the U.S. and Iran. Oil prices vary daily depending on the direction of the conflict. Currently, it seems as if the President has decided to increase our military involvement again in a more strategic manner. I think this should result in a more positive ending than endless negotiations.

As we have been saying in earlier writings, we continue to have a positive view of the U.S. economy. We have mostly maintained our equity positions and added additional funds as appropriate. One thing we are currently focused on is broadening our holdings beyond technology and energy.  In addition, our outlook for lower inflation in the coming months should translate into further interest rate declines. We have been adding to fixed-income holdings as opportunities allow.

Our team hopes each of you are enjoying the summer weather and outdoor activities. This is a fun time of the year!