July CPI Report Not As Good As Numbers Look At First Glance

The consumer price index rose the expected 0.1 percent, but significant troubles lie ahead.

CPI Month-Over-Month

The BLS reports the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent on a seasonally adjusted basis in July after falling 0.4 percent in June, the U.S. Bureau of Labor Statistics reported today.

Over the last 12 months, the all items index increased 3.4 percent before seasonal adjustment.

The BLS rounds to 1 decimal point. I show 2 decimal places

CPI Month-Over-Month

All Items: 0.07 percent
All Items Excluding Food and Energy: 0.22 percent
Food and Beverage: 0.08 percent
Shelter: 0.14 percent
Owners’ Equivalent Rent: 0.26
Rent of Primary Residence: 0.26
Medical Care Services: 0.56 percent
Medical Care Commodities: -0.61 percent
Energy: -1.48 percent
Gasoline: -2.86 percent
Food at Home: 0.07 percent
Food Away from Home: 0.31

CPI Month-Over-Month Energy, Gasoline, Utilities

Month-Over-Month CPI: Energy, Gasoline, Utilities

Energy, Gasoline, Utilities and Fuel Month-Over-Month

Energy: -1.48 percent
Gasoline: -2.86 percent
Utilities and Fuel: -0.01

Looking ahead, Trump’s moves in the strait will cause gasoline prices to jump up again.

CPI Month-Over-Month Shelter

July Shelter

Rent of Primary Residence: 0.26 percent
Owners’ Equivalent Rent: 0.26 percent
Shelter: 0.14 percent

These numbers have been falling but they have mostly been range bound since December 2024with OER at 0.26 percent.

Annualized, that 0.26 percent is 3.17 percent. That’s not terrible compared to where things were but it is well above Fed target (not that the Fed can do anything about it).

Shelter at 0.14 percent is artificially low because of energy that won’t repeat big negative numbers that won’t repeat.

CPI Month-Over-Month Food

July Food

Food and Beverage: 0.08 percent
Food at Home: -0.07 percent
Food Away from Home: 0.31 percent

The BLS weights food at home as 8.23 percent of the CPI. It weights food away from home at 5.29 percent of the CPI.

Actual spending is reversed. People spend more money eating out. If you don’t great, you are better off.

The second issue is the BLS does not count tips as part of the CPI at all. Thus the food and beverage percent is much higher every month than reported.

Five Measures of Inflation Year-Over-Year

CPI, PCE, and Rent Year-Over-Year Percent Change

Five Measures of Inflation Year-Over-Year

CPI : 3.4 percent – Bottom April 2025 at 2.3 percent
Core CPI: 2.5 percent – Bottom February 2026 at 2.46 percent
CPI Rent: 2.8 percent – Bottom March 2026 at 2.56 percent
PCE: 3.70 percent (June) – Bottom September 2024 at 2.26 percent
Core PCE: 2.9 percent (June) – Bottom April 2025 at 2.61 percent

These are not great numbers yet they are negatively skewed for two months because of energy.

CPI Year-Over-Year Food

CPI Food Year-Over-Year Percent Change

CPI Year-Over-Year Food Details

Food and Beverage: 2.9 percent
At Home: 2.7 percent
Away from Home: 3.4 percent

Because the BLS underweights food at home and does not include tips at all, food and beverage at 2.9 percent is hugely understated.

Food is 13.52 percent of the CPI

Small Price to Pay

This is a small price to pay if you focus on the mission.

Q: What’s the mission?
A: Our mission is to return the strait to where it was before we started this war.

The mission is failing because Trump has no cards.

Why the Headline Number Not as Good at First Glance

The price of oil and goods have bottomed because the strait is again closed.
Food is understated in the CPI
The CPI does not count property taxes, homeowner’s insurance, or home prices at all.

All inflation measures from the BLS and elsewhere are flat out wrong because of point three.

Economists wonder why people are more upset about inflation than what the numbers show.

That’s because they insist on stupid definitions of inflation that ignore point three totally and undercount both food and medical.

Looking Ahead

The strait is again closed and the war is very unpopular.
Trump is making more mistakes with tariffs and those costs have not shown up yet.
Republicans will be hard pressed to pass any additional legislation.
Gas prices heading back up won’t help Republican chances at the midterms.
Housing remains dead.
Deficits and debt are disasters.
Trump wants more military spending.

Bond Market View

Today, despite another favorable CPI report, bond yields barely budged.

The long bond is an elevated 5.238 percent.

The bond market takeaway is the same as mine. This was not a particularly good report, but nor was it awful.

Looking ahead, there are a lot of troubles, not even counting deficits, debt, or military spending,