The U.S. annual inflation rate, as measured by the Consumer Price Index for All Urban Consumers, slowed to 3.5% in June 2026, dropping from 4.2% in May. This easing was primarily driven by a significant monthly decline in gasoline and overall energy prices. Core inflation, which excludes volatile food and energy prices, also cooled, to 2.6%.
Despite this, inflation by all major metrics remains above the Federal Reserve’s broader 2% long-term target. In plain terms, prices are being pushed up from several directions at once:
- Elevated Demand: Following pandemic-era disruptions, high levels of consumer savings and robust wage growth in a tight labor market fueled continuous, strong consumer spending.
- Cost-Push Pressures: Global events, including geopolitical conflicts, trade and tariffs, and supply chain bottlenecks, have raised the costs of production, shipping, and energy.
- Shelter Costs: A shortage of new home construction and restrictive zoning laws limit the number of properties available. Additionally, the “rate-lock effect” discourages current homeowners with low mortgage rates from selling. Finally, corporate buyers and real estate investors often purchase properties to use as rentals or flip for a profit, which reduces the overall supply of homes available to individual buyers.
- Services: Services inflation is heavily driven by tight labor markets and rising wages. As workers demand higher pay to offset higher living expenses, service-sector businesses pass these costs on to consumers, creating a wage-price feedback loop.
Where Is Inflation Going?
U.S. inflation forecasts for 2026 range between roughly 3.6% and 4.2%, depending on the institution and the measure used. In its June 17, 2026 Summary of Economic Projections, the median Federal Reserve participant projected Personal Consumption Expenditures (PCE) inflation of 3.6% for 2026. PCE is a different index from the CPI cited above; the Fed’s median projection for core PCE is 3.3%. The Organization for Economic Cooperation and Development (OECD), in its March 2026 Economic Outlook, expected all-items U.S. inflation to average 4.2%. The International Monetary Fund’s July 2026 World Economic Outlook Update assumed a U.S. inflation rate of 3.6% for 2026.
Inflation and Retirement Income
For those relying on their investments to pay for retirement, inflation reduces your spending power. Even at the Federal Reserve’s 2% target, $50,000 in 25 years would buy what about $30,477 buys today. At inflation’s historical average of about 3%, that same $50,000 would be worth $23,880, and at a 4% rate, just $18,756. Because retirees may spend a significant portion of their income on expenses that can rise over time, such as healthcare, the impact of inflation can be even greater.
Building Retirement Assets with Inflation in Mind
A commonly used planning guideline is to work toward saving 10-20% of pay for retirement, including employer contributions, if any. It’s an aspirational goal, and not everyone can start there on day 1. It’s still important to start early, at a savings rate that you can afford, and strategically increase the amount at opportune times. When you get a pay raise or a new contract, for example, is a good time to increase your savings rate by 1-2%. Set a goal of increasing your retirement contribution strategically until you are saving 10-20% of your pay each year. The percentage you need to save will be determined by your retirement needs and when you begin saving. The sooner you start, the smaller proportion of your income you’ll need to save.
In addition to increasing your contributions each year, it is important to factor inflation into your investment choices. Over long periods, stocks have historically provided returns that outpaced inflation, although they can be volatile and may not protect against inflation over shorter periods. The JRB’s model asset allocation portfolios suggest that even an investor age 67-71 place 30-50% of their assets in equities. This means establishing a diversified portfolio that includes stocks; large-company U.S. stocks have returned an average of 10% annually since 1926, or about 7% adjusted for inflation. Past performance does not guarantee future results, but, over long periods, equities have been one of the more reliable ways to stay ahead of rising prices.
For long-term investors and those taking distributions from their retirement account, one of the best defenses against inflation is a disciplined retirement strategy: saving consistently, maintaining a diversified portfolio that includes an appropriate allocation to stocks, and reviewing your plan as your needs change. To discuss your JRB account, your retirement savings plan, and how inflation fits within your overall strategy, please contact the JRB via email or at 888-JRB-FREE (572-3733).
JRB provides this information for general educational purposes only. It is not intended as legal, tax or investment advice.
July 2026