The U.S. Bureau of Labor Statistics will release July consumer price index data at 20:30 Taipei time tonight, putting inflation back at the center of market attention after last week’s weaker-than-expected nonfarm payrolls report.
Markets are focused on four numbers in the release: headline monthly CPI, core monthly CPI, headline annual CPI, and core annual CPI.
Consensus centers on a 0.2% monthly core CPI reading
According to estimates cited from a Dow Jones survey, headline CPI is expected to rise 3.4% year over year in July, while core CPI is seen at 2.5%. That would mark a 0.1 percentage point decline from June’s 3.5% and 2.6%, though both would still remain above the Federal Reserve’s 2% long-term target.
The June base was not especially easy. Headline CPI fell 0.4% month over month that month, while core CPI was flat, driven mainly by lower energy prices and easing housing costs.
The market consensus for a 0.2% monthly increase in core CPI places tonight’s number directly in the middle of the range that Bank of America has outlined for the Fed’s September decision.
Bank of America lays out three thresholds
Bank of America said in a report that if the main inflation gauge watched by the Fed averages above 0.25% over the next two months, a September rate hike is close to certain. If the average comes in below 0.2%, the timing of another hike could be pushed back. A range between 0.2% and 0.25% would leave September looking like a coin toss.
By that framework, the market’s current 0.2% consensus for monthly core CPI sits right on the dividing line.
Economists differ, while oil remains a live variable
RSM chief economist Joseph Brusuelas said that if the data comes in as expected, two straight months of moderate inflation readings would give the Federal Open Market Committee more time to watch incoming data. He said, 「the committee will remain on hold for the rest of this year」.
Goldman Sachs offered a slightly lower estimate, forecasting monthly core CPI growth of just 0.19% for July, below market consensus. At the same time, Goldman warned that oil prices have climbed back to $87 a barrel, which could make the path of disinflation less smooth.
The market has not ruled out another hike this year
That said, the report argues it is still too early to read tonight’s CPI release as a clear sign that no further rate hike will happen this year.
At the July FOMC meeting, three members voted in favor of an immediate 25-basis-point hike. Federal Reserve Governor Lisa Cook also said that if inflation data does not cooperate, she would see a rate increase as necessary.
For now, the market is treating October or December as more likely windows for a hike rather than fully pricing out another move this year.
Weak payrolls and inflation path create a policy tension
The tension in the current macro picture comes from the fact that labor and inflation signals are not fully aligned.
July nonfarm payrolls showed a net decline of 23,000 jobs, described in the report as the first negative reading of its kind on record. The unemployment rate rose to 4.1%, while average hourly earnings growth slowed to 3.2% year over year, the lowest level since May 2021. A softer labor market would normally argue for more caution from the Fed.
If inflation also cools, the two forces point in the same direction and strengthen the case for staying on hold. The bigger risk would be a divergence: if tonight’s CPI comes in hot, the Fed would be left facing weaker employment and stubborn inflation at the same time.
Bitcoin holds between $63,000 and $65,000
At the time of writing, Bitcoin was trading at about $63,750, down roughly 0.5% over the past 24 hours. Ethereum was near $1,884.
If monthly core CPI lands around 0.2% or lower, meeting or beating consensus, that would fit Bank of America’s delayed-hike path and could offer short-term support to risk assets. In that scenario, Bitcoin may test resistance near $65,000. If core CPI unexpectedly prints above 0.25%, together with the narrative of rebounding oil prices, the probability of a September hike could rise quickly. In that case, whether Bitcoin can hold the $63,000 demand zone would become the market’s first line of focus.