U.S. CPI Cools to 3.4% in July 2026 as Core Slows to 2.5%

The Consumer Price Index for All Urban Consumers rose 0.1 percent in July 2026 on a seasonally adjusted basis, and 3.4 percent over the 12 months ending in July, down from 3.5 percent for the 12 months ending in June. The index for all items less food and energy rose 0.2 percent on the month and 2.5 percent over the year, down from 2.6 percent. Before seasonal adjustment the all-items index was unchanged on the month, at a level of 333.9.

Both annual rates moved down, and both monthly rates moved up: core rose 0.2 percent in July after being unchanged in June, and the headline rose 0.1 percent after falling 0.4 percent. The annual figures are improving because the months rolling off were worse than the months rolling on — not because price pressure in July was lighter than in June.

Shelter Still Sets the Floor

The shelter index increased 0.1 percent in July, as it did in June, and BLS puts it at roughly two-thirds of the monthly all-items increase. Over the last year shelter rose 3.2 percent.

The detail underneath is less encouraging than the headline shelter figure. Owners' equivalent rent rose 0.3 percent and rent rose 0.3 percent — the two components that carry the bulk of the shelter weight and that respond slowly to market rents. What held the aggregate down to 0.1 percent was lodging away from home, which fell 2.8 percent. That is the volatile, travel-driven slice of shelter, and it does not repeat reliably.

Strip the hotel line out conceptually and the housing component of core inflation is still running at the pace it has run at for months. Shelter is the single largest weight in the index, so until the rent and owners'-equivalent-rent lines decelerate, there is a floor under core that energy cannot dig through.

Energy Fell Again, and the Annual Rate Is Still Elevated

The energy index decreased 1.5 percent in July after falling 5.7 percent in June. Gasoline fell 2.9 percent on a seasonally adjusted basis — before seasonal adjustment it fell 2.1 percent. Moving the other way, natural gas rose 0.7 percent and electricity rose 0.1 percent. The twelve-month picture is the opposite of the monthly one. Energy is up 14.7 percent over the past 12 months, with gasoline up 24.6 percent, natural gas up 4.3 percent, and electricity up 4.2 percent. Two consecutive monthly declines have not yet dented an annual rate built on last year's increases, which means the energy contribution to headline inflation will keep falling on arithmetic alone if prices merely hold flat.

Food Diverged Between the Grocery Store and the Restaurant

The food index rose 0.1 percent in July after rising 0.2 percent in June, and 3.0 percent over the last year. The two halves went separate ways.

Food at home decreased 0.1 percent over the month, with three of the six major grocery store food group indexes declining:

• Meats, poultry, fish, and eggs fell 0.7 percent, with pork down 1.5 percent
• Fruits and vegetables fell 0.1 percent, with lettuce down 16.4 percent
• Dairy and related products fell 0.1 percent, while other food at home was unchanged
• Nonalcoholic beverages rose 0.9 percent after falling 1.5 percent in June, and cereals and bakery products rose 0.2 percent Food away from home rose 0.3 percent, with limited service meals up 0.4 percent and full service meals up 0.2 percent. Over the year, food at home is up 2.7 percent while food away from home is up 3.4 percent. Restaurant prices carry labor costs that grocery prices do not, and the persistent gap between the two lines is the clearest place in this release to see services-side wage pressure feeding through to consumers.

The Notable Movers

Outside food, energy, and shelter, July's core increase was concentrated in a handful of categories. Medical care rose 0.4 percent after falling 0.1 percent in June, with hospital services up 0.5 percent and physicians' services up 0.2 percent, partly offset by prescription drugs down 0.8 percent. Airline fares rose 2.2 percent on the month after rising 0.2 percent in June, and are up 25.5 percent over the last 12 months — the standout annual increase in the report. Communication rose 0.6 percent, education rose 0.5 percent, recreation rose 0.2 percent, and used cars and trucks rose 0.4 percent. New vehicles, household furnishings and operations, and apparel also increased.

On the other side, motor vehicle insurance declined 0.3 percent after falling 2.0 percent in June, and personal care was unchanged. Motor vehicle insurance was one of the more punishing lines for households through the recent inflation episode, and two consecutive monthly declines is a meaningful change in that trajectory. Over the last 12 months, the other notable core increases were medical care at 1.7 percent, recreation at 2.6 percent, and household furnishings and operations at 2.2 percent — all of them below the core rate, which is why the core annual figure keeps easing even as individual months come in firm.

The Other Index Families Agree

The CPI for Urban Wage Earners and Clerical Workers rose 3.4 percent over the last 12 months to a level of 327.1 and was unchanged on the month before seasonal adjustment. The Chained CPI for All Urban Consumers rose 3.3 percent over the same period and was also unchanged on the month. The chained index, which allows for substitution between goods as relative prices move, running below the headline is the normal relationship and gives no signal that the July reading is an artifact of index construction.

What to Watch

The August report publishes September 11, 2026. The number that decides the trajectory is the shelter line, not the headline. Energy is already doing the work on the annual rate through base effects, and food is roughly neutral; core at 2.5 percent is being held up by owners' equivalent rent and rent at 0.3 percent a month. A shelter print that holds at 0.1 percent for a third consecutive month while OER and rent decelerate would confirm that the aggregate is genuinely cooling rather than being masked by a hotel-price swing. If OER and rent stay at 0.3 percent and lodging away from home rebounds, headline shelter jumps back up and takes core with it.