0.2% Core Inflation.
We project the seasonally adjusted month-over-month (MoM) core Consumer Price Index (CPI) for June to increase by 0.2% (23 basis points), with headline CPI similarly expected to rise by 0.2% (24 basis points). The balance of risks remains tilted to the upside. Notably, we have made a discretionary downward adjustment of approximately 5–6 basis points to our MoM core CPI forecast this month. This revision reflects a consistent pattern of overestimation in recent months, attributable to the anticipated but unrealized impact of tariffs (so far).
From a broader perspective, fundamental inflationary pressures remain elevated, even after adjusting for tariff-related effects. The distribution of price changes within the core CPI continues to deviate from levels consistent with the inflation target, and the persistence of fat-tailed distributions underscores prevailing uncertainty in the inflation outlook.
Our medium-term baseline model remains largely unchanged.
Federal Reserve Outlook. In our assessment, the June CPI release—regardless of the precise outcome—is unlikely to alter the Federal Reserve’s current policy stance. We continue to view the Fed as remaining “on hold” in the near term.
Our machine-learning model. We have not introduced our machine-learning model yet (documentation is here). However, we have been monitoring this model for months and the out-of-sample performance is accurate. For the record, the model (which includes more than 100 variables) is forecasting 26bps MoM sa for core CPI in June, with the YoY going well above 3% by early 2026. The model forecast for core CPI can be seen here.
Our forecast
We expect headline and core CPI to increase by 24 basis points and 23 basis points, respectively, in June, with non-seasonally adjusted (NSA) levels projected at 322.611 and 328.386. Based on our forecast, year-over-year (YoY) headline and core CPI are expected to print at 2.6% and 2.9%, respectively. Table 1 provides a sectoral breakdown of our seasonally adjusted MoM forecast, with core goods and core services anticipated to rise by 11 basis points and 29 basis points, respectively.
As always, we refrain from making sectoral decomposition comments, as our focus remains on the ex-post distribution of price changes. Table 2 outlines our real-time MoM forecast errors: over the past six months, our core CPI forecast—our primary focus—has been competitive, with a standard error of 4 basis points and a standard deviation of 11 basis points. That said, the mean of our forecast error is above zero, indicating some upside risks to our MoM projection.
Table 1. MoM sa CPI forecast – details
Table 2. Recent real-time Underlying Inflation MoM (sa) CPI forecast errors
Implications for the “main” model
A Touch Higher.
Given our MoM forecast for core CPI we expect core PCE prices to grow 23bps MoM in June. Given this nowcast and a revised path for core import prices, the medium-term model forecast for core PCE price inflation is just a touch higher than the previous run. The model’s latest Q4/Q4 forecasts are as follows: 3.4% in 2025, 3.4% in 2026, and 2.9% in 2027.
Figure 1. Latest forecast of our “main” model for core PCE price inflation (YoY).
