What To Expect From Thursday’s Report On Inflation
What To Expect From Thursday’s Report On Inflation
Diccon HyattTue, July 28, 2026 at 11:00 AM UTC
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Credit: David Paul Morris / Bloomberg via Getty ImagesKey Takeaways -
The Fed’s preferred inflation gauge likely showed inflation decelerating in June, similar to the Consumer Price Index report released earlier in the month.
The drop in the inflation rate is expected to stem from gasoline prices falling that month, although prices have risen since.
The report will come too late to influence the Fed’s decision Tuesday and Wednesday whether to raise interest rates to counteract high inflation.
The Federal Reserve’s favorite measure of inflation is likely to show consumer prices fell in June due to a temporary drop in gasoline prices that month, although the data will come too late to influence the Fed’s interest rate decision on Wednesday.
Economists expect a report from the Bureau of Economic Analysis on Thursday will show prices rose 3.7% over 12 months in June, according to a survey of economists by Dow Jones Newswires and The Wall Street Journal. That’s down from a 4.1% annual increase in May.
The “core” price index, which excludes volatile food and energy prices, is expected to edge down to a 3.3% annual increase, down from 3.4% in May. Economists closely watch the core index as a measure of persistent inflation trends, and the Fed uses it as the benchmark for whether inflation is running at its target of 2% annually.
The report is likely to show an encouraging drop in inflation due to a decrease in gasoline prices in June stemming from the temporary resumption of oil supplies from the Middle East during a pause in the Iran War. If the report matches expectations, it would show a trend similar to that of the Consumer Price Index.
However, Fed officials won’t be able to take PCE inflation into account on Tuesday and Wednesday when deciding whether to raise the central bank’s benchmark interest rate to counteract inflation.
As of Monday, financial markets were pricing in a 38% chance the Fed would raise its fed funds rate by a quarter point, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data. A hike would drive up borrowing costs throughout the economy in an effort to wrestle inflation down to the 2% target for the first time since 2021.
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What This Means For The Economy
Cooling inflation would relieve pressure on household finances and the broader economy, albeit temporarily, since the Iran War once again threatens supply chains.
The June report also won’t show the effects of the latest energy price shock on consumer prices. Gasoline prices rose again in July after the U.S. and Iran resumed fighting, Iran threatened the flow of oil supplies through both the Strait of Hormuz and the Bab-al-Mandeb Strait, and Ukraine attacked Russian oil refineries, further disrupting global fuel supply chains.
”The re-escalation of the war with Iran and attacks on Russian oil refineries have pushed energy prices higher and revived fears that the already lengthy series of supply shocks could continue,” wrote David Mericle, chief U.S. economist at Goldman Sachs.
Forecasters at Morgan Stanley anticipated a mixed bag of price increases and decreases within core inflation, according to a commentary by economists led by Chief U.S. Economist Michael T. Gapen.
“We expect a modest acceleration in core goods inflation, driven by another strong increase in software prices, likely reflecting ongoing AI-related demand pressures,” Gapen wrote. “However, this strength should be more than offset by slower services inflation than in May, leading to a slowdown in overall core inflation. Key services categories expected to decelerate include shelter, food services and accommodations, and financial services.”
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Source: “AOL Money”
