US Core CPI to Test Hawkish Warsh Fed as Energy Drives Headline Lower
A projected drop in US headline inflation driven by falling gasoline prices will test the newly hawkish Federal Reserve under Chairman Kevin Warsh, who is focused squarely on sticky core prices.
US June CPI is expected to contract 0.1% month-over-month, the first negative print since early 2024, as gasoline prices fell roughly 10% following Iran peace talks that eased shipping risks in the Strait of Hormuz. OPEC meets on Monday, and if the cartel signals higher output in response to the Iran negotiations, Brent's slide toward sub-$80 will accelerate.
Investors should not mistake this headline drop for a broader disinflationary victory. As Kiplinger warns, "do not let a negative headline fool you: core CPI (cons. 0.3% MoM, prior 0.2%) stays sticky at 2.9% year-over-year." BMO’s Douglas Porter echoes this, calling the expected drop a "gasoline mirage."
The distinction is critical for markets pricing central bank policy. Under Chairman Kevin Warsh, the Federal Reserve has pivoted sharply hawkish. At his first FOMC in June, the committee raised its 2026 median inflation forecast to 3.6% from 2.7%, with nine of 18 members projecting rate hikes by year-end and a median fed-funds forecast of 3.8%. Markets currently price a quarter-point hike by December and zero cuts.
Wednesday’s PPI is expected to confirm the energy-driven reversal, dropping to 0.0% month-over-month from 1.1%. If core PPI eases to 0.3%, it would mark the first genuine improvement in the cost pipeline. However, Thursday’s retail sales are forecast to decelerate to 0.3% from 0.9%, with a negative control group print potentially signaling consumers are pulling back beyond the energy math. Michigan sentiment on Friday could mark the first improvement in five months.
Abroad, the data paints a picture of diverging global growth. China’s Q2 GDP is expected to decelerate to 0.9% quarter-over-quarter from 1.3%, alongside negative retail sales, highlighting ongoing property-sector weakness. The Bank of Canada is expected to hold its rate at 2.25% on Wednesday as it navigates CPI of 2.4% and a softening labour market.
In Europe, final euro-zone CPI on Friday is forecast at 2.8% year-over-year, down from May’s 3.0%. That drop would validate the ECB’s dovish stance ahead of its July 16 meeting. Brazil closes the week with services, retail and IBC-Br data, providing the central bank with its primary inputs for the August Copom meeting.
