Inflation Outlook 2026
Headline CPI, core inflation, PCE, and the inflation expectations embedded in markets.
Data as of · Outlook refreshed
Current State
Inflation is the variable that connects central bank policy, real yields, and asset valuations. Sticky components (shelter, services) matter more for policy than volatile components (food, energy).
Macro Regime Context
REFLATION, transitioning toward stagflation, and inflation is the leg holding the call up. The May CPI vintage has realized year-over-year inflation running at nearly twice the 2.24% the 10-year breakeven pays for, and that gap has not closed in three cycles. Growth is what changes its meaning: with the Atlanta Fed nowcast stalled and the energy premium rebuilding after the Hormuz tanker strike, an upside inflation surprise reads as stagflationary rather than reflationary. That is the difference between a Fed holding with an easing bias and a Fed with no clean move available to it.
Full regime analysis →Key Metrics
Core CPI rose 0.21% in the latest month. The 12-month rate is at its 52-week high
Core CPI rose 0.21% over the 30 days into the May 1 print, against 1% over the preceding 90 days. Rent of shelter rose 0.36% against 1.23% over the quarter. Supercore services rose 0.29% against 1.29%. In each case the latest month came in below a third of the quarterly gain, which is what disinflation looks like from the inside: not a plateau, but a sequence that decays. Compound 0.21% forward for twelve months and you land within a few tenths of what the 10-year breakeven pays. The bull case here is real, and anyone arguing against it should say so first.
Now the level it is decaying from. The year-over-year rate on the not-seasonally-adjusted CPI was 4.248674039164446% in the May print, the top of its 52-week range. Headline CPI rose 2.26% over the 90 days into that same vintage.
Against that, the 10-year breakeven closed at 2.24% on July 10 and the 5-year at 2.28%. The market is not claiming inflation has already fallen. It is claiming that a 12-month rate sitting at a 52-week high gets cut close to half over the coming prints, and that the monthly pace of the May vintage holds or improves the whole way down.
Every consumer price series quoted above is 74 days old, and the June figures land on Tuesday, July 14. What the May prints establish is the size of the wager: not whether inflation is cooling, which it is, but whether it can cool that far, that fast, while the input that did most of the visible work goes into reverse.
How much of the market's 2.24% inflation call is an energy bet?
Look at where the softening in expectations actually sits. The Cleveland Fed's model-implied one-year expectation fell 14.6% over the 30 days into its June 1 reading. Its two-year measure fell 7.86%. The five-year fell 2.07%, and at 2.54217487% it remains near the top of its own 52-week range after rising 16.47% over 90 days. Softening concentrated at the front of the curve and largely absent at the back is the signature of a commodity move rather than a change in regime.
Traded breakevens tell a version of the same story with money behind it. The 5-year fell 11.63% over 90 days and the 10-year 5.08%, and at 2.28% the 5-year sits nine basis points above its 52-week low of 2.19%.
Underneath all of it is the commodity complex. The Global Commodity Price Index fell 9.13% over the 30 days into its June 1 reading and 10.93% over 90 days, and that decline has not yet reached the consumer basket: CPI energy in the May vintage was at its 52-week high, up 3.88% in the latest month and 20.33% over the preceding 90 days. What the market is paying for is a passthrough that has not arrived.
None of which makes energy the whole edifice. Core measures cooled without help from crude, and the disinflation call could turn out right for reasons that have nothing to do with the oil price. But energy is the prop doing the most visible work, and it is the one our own reporting now has moving the wrong way: crude rallying, the Brent-WTI spread widening for a third consecutive cycle, and the seaborne risk premium rebuilding after the July 7 tanker strike in the Strait of Hormuz.
PPI and household expectations are both at 52-week highs
PPI final demand printed 157.659 in the May vintage, a 52-week high, and unlike the consumer core it shows almost no sequential relief: 1.06% in the latest month against 3.4% over the preceding 90 days, barely below the quarter's average monthly pace. Costs are still entering the pipeline at roughly the rate they entered it in the spring.
The expectations side has not cooled either. Michigan's household measure stood at 4.8% in the May print, its 52-week high, up 20% over 90 days and 2.13% in the latest month. The Cleveland five-year model expectation rose 16.47% over its own 90-day window. Anchoring is supposed to mean the far end holds still while the near end moves around. Here the far end has been travelling, and travelling up.
The cooling elsewhere is genuine, and the bearish case has to concede it rather than talk around it. Food rose 0.16% in the latest month against 1.05% over 90 days, so the volatile side is decelerating too. Used cars and trucks printed 180.005, down 0.7% over 90 days, though sitting just above a 52-week low of 179.822 and well below a 52-week high of 186.298, that line has little deflation left to give.
Two vintage warnings belong on this page. Michigan is a May reading and the Cleveland series a June one, so both could have rolled over without showing it yet. And the PPI figure carries the same 74-day lag as the CPI components. What they describe is the state of the pipeline and the state of belief as of late spring. Both are inputs the Fed weights heavily, and neither is cooperating with a 2.24% forecast.
The gap is likelier to close upward, and it closes through breakevens
The gap closes upward. That is the reading the evidence supports, market-priced inflation converging toward the realized rate rather than the realized rate falling all the way to 2.24%, and the first hint is already in the table. The 5-year breakeven rose 1.79% over the seven days to July 10 and the 10-year 0.45%, after 30-day declines of 6.56% and 4.27%. Small moves. They are also the first ones running against the disinflation trade, and they landed in the week our reporting had crude rallying and the chokepoint premium rebuilding.
Be precise about how that repricing would arrive, because the channels are not interchangeable. It comes through inflation compensation first: breakevens widening back toward realized CPI, which lifts nominal yields whether or not the Fed touches anything. Real yields are a separate argument, and our bond work has them, not breakevens, driving the past month's selloff. If breakevens turn now, the two stop offsetting each other and start adding.
The strongest case against this is mechanical. A commodity index decline recorded in the June 1 reading still has to pass through the June and July CPI prints, and it will, regardless of what crude does from here. De-escalation, the Iranian succession and the Gaza handover our macro state tracks, would bleed the rebuilt premium straight back out. Two more months at the May vintage's monthly pace and the year-over-year rate falls hard on base effects without anything else having to break.
That is what makes Tuesday's June print worth more than the usual monthly ritual. At 2.28%, the five-year breakeven pays almost nothing for the chance that the past quarter's disinflation was an energy story now running backwards.
Active Scenarios Affecting Inflation
What happens to markets when CPI inflation data comes in hotter than expected? Bond selloffs, Fed hawkishness, and portfolio positioning explained.
What happens when oil prices spike? Inflation fears, consumer squeeze, recession risk, and the complex impact on stocks, bonds, and the dollar.
What happens when US home prices crash? The wealth effect, banking stress, and cascading economic impacts of a housing downturn explained.
What happens when gold prices surge? The risk-off signal, inflation hedge demand, central bank buying, and portfolio implications explained.
What happens when long-term inflation expectations break above 3%? Fed credibility crisis, policy dilemma, and the risk of a 1970s-style wage-price spiral.
What happens when copper prices surge? Why "Dr. Copper" is the economy's best diagnostician, and what it means for equities, inflation, and global growth.
What does gold at $3,000 mean for the global economy? Analysis of what drives gold to record highs and the implications for currencies, bonds, equities, and inflation.
What happens when real interest rates turn negative? Financial repression, the war on savers, and how assets reprice when holding cash guarantees losing purchasing power.
Recent Analysis
WTI at $74.86 and Brent at $79.65 were up nearly 5% with the New York session still open, while high yield spreads sit at 2.70, the tightest reading in the feed. June CPI lands on Tuesday.
WTI at 74.05 sits 3.95 below the gate that flips the oil view bullish. The disinflationary impulse the bond market leans on is eroding whether or not that gate is ever reached.
The Atlanta Fed's nowcast printed the same 1.3% it reset to in April, and Thursday's update, not Tuesday's CPI, is the number that settles the growth question.
The market's two long-duration trades are reading the same 10-basis-point rise in real yields and reaching opposite verdicts, four days before June CPI.
The 10-year looks unchanged over a month, but beneath it real yields are up 10 basis points, breakevens price a rapid disinflation that realized CPI has not delivered, and Tuesday's June inflation print decides which side folds.
The VIX sits near 16 while Bitcoin’s Fear and Greed Index reads 15. That gap is June’s rates shock showing up in the one asset built to feel it first.
Debt-to-GDP near 125%, deficits around 6%, and a 10-year real yield at 2.16%. This scenario does not arrive in a crash; it arrives one auction at a time.
Sticky 3.6% inflation, rising claims, and a Sahm indicator near 0.3. The strict version needs inflation above 4% and unemployment above 5%, and the pipeline is pointed the wrong way.
The Sahm indicator is near 0.28 and claims are rising, yet cyclicals lead defensives and credit spreads are tight. The hard-landing case is on the back foot for now.
High-yield spreads sit near 2.80%, close to cycle tights, with no visible stress. Underneath sit $1.7T of private credit, elevated leverage, and a carry-unwind transmission line.
What to Watch
- •Monthly CPI release (around the 10th-15th)
- •Core services ex-shelter trajectory
- •Shelter disinflation pace
- •5Y5Y breakeven and market-implied expectations
- •Wage growth and unit labor costs
Frequently Asked Questions
What is the inflation outlook for 2026?▾
Inflation is the variable that connects central bank policy, real yields, and asset valuations. Sticky components (shelter, services) matter more for policy than volatile components (food, energy). The live metrics on this page plus the active scenarios below show where the current environment sits on the distribution of possible paths. The outlook is continuously updated rather than locked in as a point forecast.
What should I watch to track inflation?▾
The core watch list for inflation includes: Monthly CPI release (around the 10th-15th); Core services ex-shelter trajectory; Shelter disinflation pace. The full list is on this page under "What to Watch." These signals are chosen because they are leading rather than coincident, and because they have historically flagged regime transitions before consensus catches up.
How does inflation fit into the broader macro regime?▾
Every Outlook Hub is anchored to the current Convex regime classification (Goldilocks, Reflation, Stagflation, or Deflation). The Macro Regime Context section on this page shows how inflation typically behaves in the current regime and what a regime change would imply for these metrics.
Which scenarios could change the inflation outlook?▾
The "Active Scenarios" section lists scenarios that most directly affect inflation conditions. Each scenario page includes a probability-weighted asset response, historical precedents, and live trigger metrics. Multiple active scenarios at once are the strongest signal that the outlook is about to shift.
How often is the Inflation Outlook refreshed?▾
The key metrics on this page pull live data and refresh within minutes of each release. The regime context and scenario probabilities update daily. The narrative itself is rewritten against the live data on a weekly rotation, with the date of the current version shown at the top of the page, and it is rebuilt sooner when the structural read on inflation changes materially.
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