Overview
Truflation's most recent forecast indicates that headline PCE inflation remained flat on a month-over-month basis in June, with the year-over-year headline rate cooling modestly to 3.7%. In its early projection ahead of the Bureau of Economic Analysis release scheduled for July 30, the firm highlights that the core PCE index - which excludes food and energy and is closely watched by the Federal Reserve - is expected to increase 0.2% from May to June and to register a 3.3% gain versus a year earlier.
What the numbers imply
The projected 0.2% monthly increase in core PCE signals that underlying price pressures remain present even as headline inflation shows signs of easing. These dynamics feed directly into monetary policy expectations: the CME FedWatch Tool indicates the market widely expects the Federal Open Market Committee to keep its policy rate in the 3.50% to 3.75% range at its July meeting.
Many economists, according to Truflation's summary of current sentiment, expect the existing policy stance to remain in place through the remainder of 2026. At the same time, rate expectations have grown more hawkish in recent weeks, and a rising share of economists now view a rate increase before year-end as more likely than not. Markets, in turn, are pricing in the possibility of two rate hikes by the end of March 2027.
Drivers of shifting expectations
Truflation attributes much of the recent shift toward tighter expectations to a near 25% jump in oil prices following renewed conflict in the Middle East. That surge in crude has raised doubts about the durability of the recent disinflationary trend.
On the category level, Truflation's data show gasoline and energy goods declined 7.3% month-over-month in June. However, the firm notes prices have since moved higher as crude oil climbed, suggesting the June drop may not persist.
Outlook and risks
Looking ahead, Truflation expects headline inflation to moderate gradually and then stabilize toward the end of the third quarter. Nevertheless, the firm warns that risks are skewed to the upside for the second half of the year. Specific sources of upside pressure include services inflation, wage growth, housing costs, health care prices and tariff pass-through effects.
Truflation also states its baseline view is that the Fed will keep rates unchanged through the remainder of 2026 unless inflation comes in materially higher than expected or economic activity deteriorates sharply.
Implications for markets and sectors
The persistence of core inflation and renewed energy-price volatility bear directly on interest-rate-sensitive markets and sectors. Bond yields and monetary policy-sensitive equity sectors may respond to changing rate expectations, while energy, consumer-facing industries and housing-related sectors could be exposed to the pass-through effects of higher energy and services costs.