By Ahmad Assiri, Research Strategist at Pepperstone
Markets are closely watching today’s US Consumer Price Index (CPI) release, an event that could significantly impact current trading dynamics not just for the remainder of August, but potentially for the entire quarter. Consensus calls for a modest uptick in headline inflation, from 2.7% to 2.8%, while core CPI – stripping out food and energy – is expected to remain sticky or edge toward the 3% mark. Such a print would underscore that underlying price pressures are persisting and may now be feeling the heat from recently come-into-effect tariffs, whose full impact has yet to filter through to consumer prices.
Today’s print will help determine just how far the Fed can advance along its monetary easing path without compromising its inflation mandate. The macro backdrop is further complicated by the extension of the US–China trade deal rather than a firm final deal.
While it preserves the flow of goods under prior terms with 30% rate, it keeps the threat of them very much in place. The effect ultimately filters into the cost of goods and services. Companies with healthy margins may partially absorb these costs to stay competitive, but the risk to prices remains. For the Fed, this reinforces the difficulty of striking the right balance between supporting growth and containing inflation, making today’s release an important data point in quantifying the degree of concern in hard numbers.
US indices traded in narrow ranges yesterday, reflecting a clear trading sentiment of a wait-and-see vibe. Participants appear reluctant to initiate fresh positions ahead of the CPI print, knowing that an upside surprise could meaningfully shift the narrative and likely toward a more defensive tone.
Core CPI remains the markets closely watched for assessing underlying price momentum, free from the volatility of food and energy. Even if headline inflation moderates, a sustained core print at or above 3% will keep policymakers on edge as they weigh rate cuts. The latest jobs data, however, painted a far way weaker-than-expected picture and signs of perhaps too much cooling in the labour market raise the policy challenge for Chair Powell and colleagues: ease rates to support growth, or hold firm in the face of stubborn price pressures? The market base case remains for a 25bp cut, but inflation will likely be stickier than the Fed would prefer.
Beyond CPI, Thursday’s Producer Price Index PPI release, forecast at 2.5% YoY, will also carry weight. As an upstream measure of goods and services prices at the producer level, it acts as a warning for potential consumer price pressures, should producers pass costs through. With trade frictions already disrupting or reshaping import flows, markets will watch for PPI signs of latent inflation building at producer’s level.
The bigger picture. Today’s CPI print is less about the number itself and more about its context, how it changes market expectations for monetary policy, trade dynamics, and corporate performance. A softer-than-expected reading could reignite risk appetite and push equity benchmarks toward the highs. A hotter print could force a broad repositioning with effects across equities, bonds, FX and commodities.
Looking Ahead
Today’s session brings a mix of catalysts that could alter the market’s current stance. The CPI release stands as the key driver for rate expectations and risk sentiment, while the Reserve Bank of Australia’s rate cut decision offers insight into the global central bank direction function in a now less clouded macro environment in Australia. Remarks from two Fed officials later in the day could attract more eyes and potentially be market-moving if the inflation data lands outside the distribution range, possibly resetting the policy path.
In short, the ingredients are in place for volatility with a potential for rotations as investors recalibrate to the latest macro and policy signals.