The projected uptick underscores the resilience of services inflation, particularly in housing, healthcare, and other core components, despite the Fed’s prolonged tightening campaign. Such momentum keeps core inflation running above the pace required to achieve the 2% annual target, leaving policymakers in a difficult balancing act between curbing inflation and avoiding a sharp economic slowdown.
Headline inflation holds steady
On a year-over-year (YoY) basis, headline CPI is forecast to remain broadly unchanged at 2.8%-2.9%. Core CPI, which excludes food and energy prices, is forecast to be 3.1% YoY, in line with last month, which may calm fears about a tariff-related rise in inflation. While this stability may appear reassuring, it conceals the underlying monthly dynamics that continue to generate upward pressure on prices.
Energy costs remain a swing factor, with recent oil market volatility and gasoline demand adding uncertainty to the final print. Meanwhile, food price developments remain mixed as commodity markets respond to shifting weather conditions, supply chain disruptions, and seasonal patterns.
Tariff impacts yet to filter through
Recent tariff measures may begin to show a meaningful effect in August’s data. Supply chain lags mean companies often absorb costs in the near term before gradually passing them on to consumers but in autumn retailers traditionally tend to hike their prices. Therefore traders remain alert to the possibility that CPI prints in the latter part of this year could reflect more pronounced tariff-driven inflation.
Policy implications: spotlight on September FOMC
With the Fed’s next policy meeting scheduled for 16-17 September, the August CPI release carries heightened importance. Officials have stressed their data-dependent approach, making this print – following last week’s much weaker-than-expected employment data – pivotal for market expectations.
While current market pricing suggests near certainty (88%) around a Fed 25-basis point September rate cut, there is a 12% expectation for a 50-bps cut despite persistently elevated core inflation reinforcing the case for maintaining a steady approach to cutting rates.
According to the CME FedWatch Tool analysts expect to see three 25-bps rate cuts this year (up from two a month ago) and a further three next year.