The Latest Inflation Data Will Drop on July 14. Here's Why It's a Big Deal for the Stock Market

Investors will get their latest look at inflation when the Bureau of Labor Statistics releases the June Consumer Price Index (CPI) reading at 8:30 a.m. on July 14.

The CPI tracks the prices of a range of consumer goods and services and serves as a key gauge of inflation for the market.

Inflation has remained above the Federal Reserve’s 2% target now for over five years. Headline year-over-year inflation has surged this year, due to the Iran war, which sent oil prices soaring.

The market even expects the Fed to raise interest rates later this year to rein in sticky inflation. Here’s why tomorrow’s report is a big deal for the stock market.

Image source: Getty Images.

The data may come in soft

In May, inflation rose significantly. The CPI increased 0.5% seasonally adjusted during the month and was 4.2% higher year over year. Stripping out more volatile food and energy prices, core CPI was 2.9% higher year over year.

During June, tensions between the U.S. and Iran appeared to de-escalate, and the two sides even announced a memorandum of understanding.

Oil prices fell dramatically, which is expected to provide some relief from inflation.

"On inflation, while pump prices have been stickier than crude, they still fell 10% in June, or the fourth largest monthly decline in the past decade," BMO Chief Economist Douglas Porter wrote in a recent research note, according to Kiplinger. "There's not much of a seasonal adjustment in June gasoline prices, so that alone will carve 4 ticks from overall prices."

US Consumer Price Index YoY data by YCharts

The Federal Reserve Bank of Cleveland’s Nowcasting tool expects headline CPI to fall nearly 0.1% on the month and be up about 3.9% year over year.

Meanwhile, core CPI is projected to rise 0.2 for the month and be up 2.85% year over year.

How the market could respond

Investors should not read too much into the headline number, as economists already expect it to look better than in May. Core inflation is more important, as it is much less influenced by energy and food prices.

Ultimately, this CPI report is the last major inflation data point before the next Federal Open Market Committee (FOMC) meeting in July.

As of this writing, the market is placing a 65% likelihood that the Fed will hold rates steady. The market is also betting on a quarter-point interest rate hike in September and a second quarter-point hike in January of 2027.

Keep in mind these odds change frequently.

If inflation comes in as expected, the FOMC will likely hold rates steady at its July meeting. However, if the report shows higher-than-expected inflation, the market will begin to consider a rate hike at the Fed’s July meeting, which could trigger a sell-off.

If core inflation comes in lighter than expected, the market may rise on hopes that the Fed won’t need to raise interest rates as much as expected, and potentially not at all.

Investors should never try to trade based on a near-term data point, as they don’t know what the data will look like or how investors will react.

However, understanding what could move the market will keep investors calmer, allowing them to make more rational decisions, even if that means doing nothing at all to their portfolios.

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