The devil will be in the details once again when it comes to the US CPI report later

Let’s start with the expected figures. As always, the core estimates are the most significant ones to pay attention to. And in the August report later, the consensus is for core CPI to come in at +0.3% m/m. That is the same as July. But if you drill down to an added decimal point, the expected is +0.32% m/m for August – which is also what we saw with the July report.

Meanwhile, core CPI from an annual basis is expected to come in at +3.1% y/y. That is again the same as July once you round up but the extra decimal point makes for +3.10% y/y for the August estimate as opposed to +3.06% y/y for July. So, that is the consensus expectation going into the report release later.

However, what do the other numbers say?

In July, we did see an acceleration in core prices but it was mostly driven by services instead of goods. That helped to give markets some sense of relief that the tariffs passthrough is not quite yet that impactful. So, what can we expect today?

For one, base effects are expected to help with a rebound in energy prices which declined by 1.1% m/m in July. MNI estimates are for a bump up by 0.8% this month. Food prices are also expected to move up on the month, so just keep that in mind.

But the most important detail will be to look at core goods prices. And the expectation is for that to come up higher again, with MNI estimates at +0.30% m/m. That will be up from the +0.21% m/m reading in July, which was below consensus expectations.

With markets already fully pricing in a 25 bps rate cut for next week, the question will be is there enough evidence – or should I say lack thereof – today to lean towards chasing a 50 bps rate cut? That will require the inflation numbers to fall below estimates with again another month of underwhelming core goods prices.

In other words, that will translate to another month where the tariffs passthrough on prices has yet to meaningfully materialise.

By year-end, traders are pricing in ~68 bps of rate cuts. And if there is a flip side where the inflation numbers run hotter than expected, we should see traders reprice this one. A move in September looks to be a given but traders are not fully convinced of a more aggressive move for next week. So, that also casts some doubt about the Fed needing to move consecutively in September, October, then December.

As such, if there is reason to pull back on rate cuts pricing, expect it to show up in the pricing by year-end and not so much so for September. However, the numbers today could tee up how the Fed wants to set up their communication for next week.

I’ll be back with some analyst previews in just a bit.

This article was written by Justin Low at investinglive.com.