Summary
- The August CPI and core CPI readings are expected to influence next week’s FOMC rate decision.
- August CPI is forecast to rise 0.4% from a month earlier and 3.4% from a year earlier, with energy prices and airfare and lodging costs adding upward pressure.
- Depending on the pace of core CPI growth, the odds could shift between a 25-basis-point Fed rate increase and a rate hold, while the federal funds futures market is pricing in about 37 basis points of additional tightening by year-end.
Forecast Trend Report by Period
The U.S. consumer price index for August is due Sept. 11, and the result could influence the Federal Open Market Committee’s rate decision next week.
Walter Bloomberg reported on Sept. 10 that August CPI is forecast to rise 0.4% from the previous month, accelerating from 0.1% in July. Core CPI is projected to increase 0.2% on the month. From a year earlier, headline CPI is expected to rise 3.4% and core CPI 2.4%.
The faster increase in headline inflation is likely to be driven by energy prices. Energy prices are projected to rebound about 2.5% in August after falling 1.5% in July, while airfare and lodging costs could also add upward pressure. By contrast, gains in medical costs and used-car prices are expected to slow, and apparel prices are forecast to decline.
If core CPI rises 0.3% from the prior month, the odds of a 25-basis-point Fed rate increase could increase. A 0.2% reading would likely leave uncertainty over the rate decision intact. If it comes in at 0.1%, expectations for a pause could strengthen. The federal funds futures market is currently pricing in about 15.5 basis points of additional tightening by next week and about 37 basis points by year-end.
JH Kim
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