August CPI Report: What the Inflation Data Is Expected to Show
The August Consumer Price Index (CPI) report is the last inflation update the Federal Reserve will see before it meets next week. After the August jobs report came in much better than expected and lifted odds of a September rate hike, this week’s inflation data carries an outsize significance for the Fed and its upcoming policy decision.
“Consumer prices rose a modest 0.1% in July from June, and the 12-month inflation rate dipped slightly to 3.4%, as gasoline prices fell 2.9%,” writes David Payne, staff economist and reporter for The Kiplinger Letter, in the Kiplinger inflation outlook. “A beneficial 0.8% decline in drug costs and only a modest rise in the cost of groceries also contributed to the low July number.”
But several things changed from July to August, he adds, including rising prices for gas and computers, and higher housing costs. These are likely to lift inflation.
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“If the August report is not terrible, then the Fed will probably leave interest rates unchanged,” says Payne. “However, if the August report looks worse, as we expect it will, then the pressure will build on the committee to start raising short-term rates by a quarter of a percentage point at that meeting and the two following meetings in October and December.”
At last check, CME Group FedWatch shows futures traders are pricing in a 62% probability the Fed will hike the federal funds rate by 25 basis points next week, up from 44% one month ago.
What is the CPI?
“CPI is a measure of the average price of that basket of goods and services over time,” writes Kiplinger contributor Coryanne Hicks. “The specific goods and services within the CPI basket are based on information that around 24,000 families and individuals give the U.S. Bureau of Labor Statistics on what they buy.”
The two primary measures of CPI are headline, which is the total inflation rate experienced by households, and core CPI, which excludes volatile food and energy prices.
Core CPI came in better than expected on a monthly basis in July, with the 0.2% increase beating economists’ estimates for a 0.3% rise. Year over year, core inflation was up 2.5%, matching forecasts.
When is the August CPI report released?
The Bureau of Labor Statistics will release the August CPI report at 8:30 am Eastern Standard Time this Friday, September 11.
Headline CPI is expected to be up 0.4% from July to August and 3.4% from the year prior. Core CPI is forecast to rise 0.4% month over month and 2.4% year over year.
Ahead of the August CPI report, we looked at what economists, strategists and other experts on Wall Street expect the data to show. You’ll find these outlooks, edited at times for brevity, below.
What Wall Street expects from the August CPI report
(Image credit: Getty Images)
“The August CPI report lands Friday morning. Five days after that, the Fed’s rate-setting committee meets under Chair Kevin Warsh, who used his Jackson Hole speech last month to make clear he isn’t ready to declare victory on inflation. His words, not mine: this summer’s readings, better than expected, ‘do not tell me that underlying trends have meaningfully improved.’ Markets have been whipsawing on hike odds ever since. I’d treat any single number you see quoted on this front with a raised eyebrow this week. Oil sitting at $100 a barrel, arriving two days before a closely watched inflation print, is not going to make Warsh’s job any easier.” – Dr. Mark Malek, CIO at Siebert Financial
“Brent breaking above $100 is a major psychological milestone for markets, but the bigger concern is what this means for inflation. A prolonged oil shock could keep price pressures elevated and complicate the path for central banks that are already navigating a difficult policy environment. This makes the ECB and U.S. inflation data particularly important. Markets are effectively being pulled in two directions — higher energy prices are strengthening the case for tighter policy, while softer underlying inflation could give central banks a reason to remain cautious. The data this week could determine which narrative wins.” – Lukman Otunuga, Head of Market Research at FXTM
“U.S. inflation takes center stage after a blowout jobs report last week strengthened expectations for a Fed rate increase this month. We still don’t see a hike as a foregone conclusion. This week’s CPI report will provide another crucial piece of data, with a hot print likely to tip the balance toward a hike and push global yields higher.” – BlackRock
“This week’s CPI report is the most consequential data point before the Fed’s September meeting, the last inflation reading policymakers will see before deciding on rates. Headline inflation is expected to ease slightly to 3.3% year-over-year from 3.4%, while core prices accelerate modestly to 0.22% month-over-month from 0.20% in July. Energy prices have stayed elevated amid renewed Middle East tensions, and investors will watch closely for signs of that pressure spilling into core inflation. Governor Waller signaled last week that a hotter print could reopen the possibility of a rate hike, providing some of the policy clarity markets have been trying to glean from Chair Warsh’s remarks. Investors should resist treating a rate hike this month as a settled outcome, as the case for one continues to rest on an inflation impulse that has been energy-driven and has yet to show convincing evidence of broadening.” – Jason Pride, Chief of Investment Strategy & Research and Michael Reynolds, Vice President of Investment Strategy at Glenmede
“Headline inflation looks to have picked up last month. We estimate the CPI rose 0.40% in August, with gasoline prices increasing a little over 4% as renewed tensions in the Middle East pushed oil higher. Grocery prices also likely rebounded after modestly declining in July. Outside of food and energy, price pressures appear little changed. We expect the core CPI to rise 0.23%, essentially matching July’s pace.” – Wells Fargo
