Consumer Price Index July 2026

Headline Consumer Price Index (CPI) rose 0.1% month over month (m/m) in July following June’s sharp decline, while annual headline inflation edged down to 3.4% year over year (y/y) from 3.5%. Energy prices continued to provide some relief, falling 1.5% on the month, although the drag from lower gasoline prices was smaller than in June as the powerful energy-driven disinflation boost began to fade. Food prices rose a modest 0.1% with slightly lower grocery prices offsetting a 0.3% increase in restaurant prices.

Core CPI was in line with expectations, rising 0.2% m/m in July after an unusually soft June reading. Core inflation edged down to 2.5% y/y from 2.6%, helped by favorable base effects. The rebound in core prices was broad-based and largely reflected normalization in several categories that posted outsized weakness in June. Core goods prices rose 0.2% m/m, led by modest rebounds in used vehicles, new vehicles and apparel prices, alongside notable price gains across tech-related goods.

Core services inflation also reaccelerated modestly, rising 0.2% on the month, driven by rebounds in medical care services, airfares, education and communication services. Rent and owners’ equivalent rent both increased 0.3% m/m, although another sharp decline in lodging away from home held the overall increase in shelter costs to a modest 0.1% for a second consecutive month.

Overall, July’s data reinforces our view that inflation is continuing to move in the right direction, but the disinflation process will remain gradual and uneven. With the outsized boost from falling energy prices beginning to fade and core inflation proving sticky across several service categories, further disinflation is likely to be slower and bumpier. 

Looking ahead, we foresee headline inflation moving toward 3.3% y/y by year-end while core CPI inflation is expected to ease toward 2.4% y/y. We anticipate further disinflation in the coming months as core inflation remains contained, though progress is likely to become slower in the final quarter of the year. And inflation risks remain skewed to the upside. Geopolitical tensions and energy market volatility could generate renewed price pressures, while lingering tariff pass-through and strong investment tied to the AI buildout continue to support inflation in selected goods and technology-related categories.

For the Fed, the July CPI report is unlikely to settle the policy debate, but it does provide policymakers with additional room to remain patient. While core inflation remains above levels consistent with price stability, the broader disinflation trend remains in place. At the same time, the firming in core prices is unlikely to provide much reassurance to more hawkish officials who remain concerned that progress toward 2% is too slow and uneven.

Ultimately, policymakers will need to see additional soft inflation prints before gaining confidence that inflation is moving sustainably back toward the 2% target. We expect the August CPI report to provide some additional reassurance, aided in part by favorable base effects that should help push annual inflation measures modestly lower. Our base case remains that the Fed stays on hold through year-end as inflation continues to gradually moderate, but it remains a close call. Any renewed firming in core inflation over the coming months would strengthen the case for additional tightening.

In the details:

• Energy prices fell 1.5% m/m in July following June’s sharp 5.7% m/m decline. Gasoline prices dropped 2.9% on the month, extending June's decline but providing a notably smaller drag on headline inflation. Meanwhile, natural gas prices increased 0.7% m/m and electricity prices edged up 0.1%, suggesting the energy-driven disinflation boost is beginning to fade.

• Food prices rose a modest 0.1% m/m, with a 0.1% decline in grocery prices – the first price drop since March 2026 – offset by a 0.3% increase in restaurant prices. Within food at home, prices for meats, poultry, fish and eggs fell 0.7% while nonalcoholic beverages increased 0.9%.

• Beneath the headline, core CPI rose 0.2% m/m after June’s flat reading. The increase was broad-based and largely reflected normalization in categories that posted outsized declines in June rather than a broad-based reacceleration in inflationary pressures.

• Core goods inflation firmed 0.2% in July. Recreational and education commodities increased; apparel prices edged 0.1% higher after declining in June; and used and new vehicle prices also rebounded modestly. Technology-related goods were a notable source of price pressure, with information technology commodities rising 1.4% m/m, led by a 3.5% increase in computer prices. Meanwhile, computer software prices rose 0.5% on the month and accelerated to 21.2% y/y, suggesting that robust investment tied to the AI buildout is increasingly boosting pricing across parts of the AI ecosystem.

• Shelter inflation remained relatively contained. Rent of primary residence and owners’ equivalent rent both increased 0.3% m/m, but a sharp decline in lodging away from home held overall shelter inflation to just 0.1% m/m for a second consecutive month. Medical care prices rose 0.4% m/m in July, rebounding after June’s decline. Communication services and education also moved higher, contributing to the firming in core services inflation.

Transportation services inflation was mixed. Airline fares jumped 2.2% m/m after declining in June and remain up more than 25% from a year ago. By contrast, motor vehicle insurance prices fell another 0.3% m/m and extended a three-month decline, although the pace of disinflation has moderated markedly from May and June.

The views reflected in this article are the views of the author(s) and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.