Fin-X Rapid Response 15th July 2026

US headline and core CPI both undershot expectations in June. Short-term Treasury yields fell. But the market continues to expect two rate hikes by the Federal Reserve before the end of 2027, as Kevin Warsh told Congress the Fed wasn't done fighting inflation. 

• The headline US CPI index fell by -0.4% in June on a seasonally adjusted basis, reversing a +0.5% increase in May. Economists had been expecting a smaller decline of -0.1%. This drop was the largest 1-month decrease since April 2020.

• Over the last 12 months, the all-items index increased by +3.5%, down from +4.2% in May. Expectations were for a stickier +3.8% increase.

• Core CPI ex-food & energy was flat on the month (+0.0% versus +0.2% expected) and up +2.6% over the year. Markets were also expecting a reading closer to May's +2.9% annual rise.

• Energy prices fell by -5.7% in June after rising +3.9% in May, +3.8% in April, and +10.9% in March. The energy index was the largest contributor to the monthly all items decrease, more than offsetting increases in other indexes including those for shelter and food.

• The food index increased +0.2% over the month and +3.0% yoy.

• The highly-weighted shelter component rose by +0.1% in June and +3.3% yoy.

• Indexes that decreased over the month include motor vehicle insurance (-2.0%), communication (-1.5%), apparel (-0.6%), medical care (-0.1%), and used cars and trucks (-0.2%).

•  In contrast, the indexes for recreation (+0.5%), household furnishings and operations (+0.2%), and personal care (+0.2%) were among the major indexes that increased in June.

• The Fed's "supercore" measure of services ex-housing fell by -0.2% during the month and rose by +3.2% yoy, down from +3.7% yoy last month.

• The recently appointed Federal Reserve Chairman, Kevin Warsh, said slowing inflation in June doesn't mean mission accomplished, suggesting that monetary policy may need to tighten, but not clearly signalling a rate rise.

• Also today, Bloomberg has reported that President Donald Trump backed away from his plan to impose a 20% charge on cargo shipments through the Strait of Hormuz after US allies in the Gulf urged him to drop it. 

Market Reaction

• S&P500 7,544 +0.4%, Nasdaq Comp. 26,107 +0.9%, S&P/ASX200 8,861 +0.6%,

• US 2yr 4.19%  -9bps, US 10yr 4.58% -4bps

• US dollar (DXY) index 100.875 (unch), AUDUSD 0.6982 +0.1%, Gold US$/oz 4,056 +0.1%

Fin-X Capital Group View

• The drop in energy prices was the main reason that CPI inflation decelerated in June. Given the recent escalation in tensions and a rebound in oil prices, the rates market is understandably looking through the pullback.

• However, the drop in energy prices doesn't explain why core CPI came in short of forecasts. The most likely reason appears to be that forecasts based on models that use lagged variables don't fully anticipate the impact of spring discounting, particularly in core goods such as motor vehicles. 

• The shelter component also seems to be less sticky than consensus expectations. Potential weakness in the housing market in response to higher long-term yields is something that we are watching closely. But for now, shelter costs are continuing to rise steadily.

• Consequently, there's no broad-based collapse in consumer prices, and it wouldn't be a surprise to see a rebound next month.

• With all measures significantly above the Fed's 2% target, the FOMC is likely to remain hawkish, although there is little chance of a rate hike later this month. The market is pricing in a near-50 % chance of a quarter-point hike at the next meeting in mid-September. 

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