The U.S. Bureau of Labor Statistics will release July CPI data at 8:30 p.m. Beijing time on August 12, with markets looking to the report for a clearer signal on the Federal Reserve’s September meeting.
According to the Dow Jones consensus cited by BlockBeats, headline CPI is expected to rise 0.1% month over month, while core CPI is projected to increase 0.2%. On an annual basis, the two readings are seen at 3.4% and 2.5%, respectively. Both would be 0.1 percentage point lower than in June, though still well above the Fed’s 2% target.
Traders are currently pricing the probability of a September rate hike at roughly 50%. In that setup, tonight’s inflation print could tilt expectations either way.
What an in-line reading could mean
RSM chief economist Brusuelas said that if the data matches expectations, two straight months of relatively mild inflation readings would give the Federal Open Market Committee more time to assess conditions. 「The committee will remain on hold for the rest of this year.」
June CPI fell 0.4% month over month, while core CPI was flat. The report said lower energy prices and slower housing-cost growth were the main contributing factors.
A hotter-than-expected July reading, however, would quickly change the picture.
How markets are framing the rate path
Bank of America said that if the Fed’s main inflation gauge rises an average of 0.25% over the next two months, a September rate hike would be close to certain. If the average comes in below 0.2%, tightening could be pushed back. If it lands between 0.2% and 0.25%, the September call would effectively be a coin toss.
At the July FOMC meeting, three members already voted in favor of an immediate 25-basis-point increase. Governor Cook also said recently that if inflation data does not cooperate, a rate hike would be necessary.
Markets are also assigning relatively higher odds to a move in October or December. BlockBeats said the final direction still depends on Warsh’s policy stance, namely whether he is willing to back a rate increase or whether the more dovish tone from the July press conference better reflects his position.