July’s consumer price index (CPI) report drew conflicting interpretations from economists on Wednesday, as the same data was read as a sign of disinflation, a case against current Fed policy, and grounds to question the numbers themselves.
The Case for Disinflation
For former Fed economist Claudia Sahm, the report continued to build the case that inflation is moving in the right direction.
Implications for the Fed: good news. Disinflation, even as the Fed's been on hold so far this year, supports its stance. It's too soon to say whether a hold will be appropriate in September—more data coming—but the chances of a hike edged down some today.
— Claudia Sahm (@Claudia_Sahm) August 12, 2026
She noted that supercore inflation, or non-housing core services, rose just 0.2% in July, well below the pace seen earlier in the year, and called the narrowing breadth of price increases “the best news in today’s report.”
The breadth of inflation narrowed in July, reducing one of the risks the Fed is monitoring. The share of the CPI basket with prices rising 5%+ fell in July and is back to the average levels in 1997-2005, when inflation was close to 2%. This may be the best news in today's report! pic.twitter.com/1zhFBJbdko
— Claudia Sahm (@Claudia_Sahm) August 12, 2026
The CPI rose 3.4% year-over-year in July, in line with economists’ estimates and down from June’s 3.5% increase, while core CPI eased to 2.5% annually from 2.6%.
Still, she cautioned that two months of data isn’t enough to confirm the trend, with Thursday’s Producer Price Index report set to shape the outlook for the Fed’s preferred gauge, the PCE index.
Market strategist David Rosenberg echoed that read, saying price pressure has narrowed to a handful of categories, such as computers, airfares and used cars, while showing little movement elsewhere.
He added that inflation skeptics, including the Fed’s three dissenting officials, will eventually be forced to change their tune as the disinflation trend builds.
The core CPI is running at the grand total of a +1.6% annual rate over the three months to July. The comparable this time last year was +2.7%. Inflation did show up last month in computers (thanks Apple!), airfares, toys, appliances, and used cars. But it didn’t show up anywhere…
— David Rosenberg (@EconguyRosie) August 12, 2026
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Skepticism Over What the Data Captured
However, Veteran economist Peter Schiff called the print “misleading”, saying the way energy prices are captured created a lag effect, since oil and gasoline started July depressed before rebounding sharply, adding that the print still reflects May’s collapse rather than July’s rally.
July’s 0.1% CPI rise is misleading. Energy prices fell because CPI compares monthly average prices. But oil and gasoline rose sharply during July after starting the month at depressed levels. That means July CPI still reflects May's oil price collapse, not July's sharp rebound.
— Peter Schiff (@PeterSchiff) August 12, 2026
Charlie Bilello, chief market strategist at Creative Planning, said inflation has run well above the Fed’s 2% target since January 2020, calling the gap “a massive failure of monetary policy.”
The Fed spent years telling us 2% inflation was the goal.
— Charlie Bilello (@charliebilello) August 12, 2026
But since January 2020, CPI has risen at a 4.0% annualized rate and is now 13% above a 2% inflation trend.
That’s not "price stability." It’s a massive failure of monetary policy. pic.twitter.com/WINJUdTkLA
The Fed is Too Tight
James Thorne, chief market strategist at Wellington Altus, said the Fed’s benchmark rate remains above the neutral level needed to keep the economy balanced, even as rate-sensitive sectors such as housing and business investment are already showing strain from tight policy.
He said the case for keeping rates restrictive amounts to little more than “institutional inertia dressed up as vigilance,” calling it “pathetic.
Pundits Dodge the Obvious: The Fed Is Too Tight.
— James E. Thorne (@DrJStrategy) August 13, 2026
Today’s CPI discussion produced the usual quantity of noise and virtually no monetary analysis. Pundits parsed decimal points, recycled tariff anxieties, and treated every monthly price movement as though it were a revelation. Yet…
With inflation expectations contained, Thorne argued, “the sensible default is for the funds rate to sit at neutral, not above it.”
Sahm’s own outlook pointed in a similar direction, saying the data supports the Fed’s decision to hold rates steady so far this year, with the odds of a hike edging down slightly following the report.
What it Means for Markets
Economist Mohamed El-Erian tied the report to bond market moves, saying elevated Treasury yields have less to do with inflation or Fed policy and more to do with the heavy supply of government and corporate debt ahead.
Today’s Treasury price action, which followed a benign CPI print and moderating rate-hike expectations, supports the view that the "high" level of yields is less about inflation and/or Fed concerns, and much more about the heavy weight of upcoming government and corporate debt… pic.twitter.com/7HErfwSf8C
— Mohamed A. El-Erian (@elerianm) August 12, 2026
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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