June CPI came in at 0% this morning. Rates dropped.
That's a strange result. We're actively bombing Iran right now. Oil is up sharply in two weeks. Every headline this month says inflation should be running hot.
So why did the print come in flat?
Because CPI is a 30-day lag. June was the ceasefire month. Oil stayed calm or fell the entire time. Today's data isn't telling us about the world we're in right now — it's telling us about the world we were in a month ago.
That makes today's number more interesting than usual. It's basically a controlled experiment. Take out the war. Let oil settle. What does inflation do? Nothing. Zero. Flat.
Which means we know exactly what has to happen for mortgage rates to come down. Not a Fed rate cut. Not a cooler jobs report. Not political intervention. Peace in the Middle East. That's the lever.
The bad news: July isn't going to look like June. Oil is back above $79, we're back to trading strikes, and the July CPI report next month will almost certainly come in hot. Rates will bounce up with it.
The good news: today's number tells us that a July bounce is temporary if we can get to a deal. There's no structural inflation problem hiding under the war premium. The war IS the inflation problem.
So the next time a client asks you what's going to happen to rates — don't watch the Fed. Don't watch CPI. Watch the Strait of Hormuz. That's the entire story.
— MF
