Good morning,
Following yesterday’s weaker-than-expected US August inflation numbers, market participants turn to today’s August release, which could prove pivotal for policy expectations.
US PPI Inflation Delivers Welcome Relief
inflation rose by 2.6% YY, easing from 3.1% in July (and considerably lower than the 3.3% median forecast); MM fell by 0.1%, down from a 0.7% increase in July. A similar picture was seen across the inflation measures, with MM data falling by 0.1% and the YY print easing to 2.8% (down from 3.4%).
The PPI release triggered immediate downside in US Treasury yields and the (though short-lived), while major US equity indexes continued to reach record highs as investors repositioned for a potentially more aggressive Fed easing cycle. Spot gold () also saw a brief rise.
So, despite the surprise pop higher in the July PPI print, inflation is now clearly drifting in the right direction. This reinforces the narrative of cooling price pressures, with several market commentators now even discussing a potential 50-bp rate cut from the Fed next week.
However, while the combination of softer PPI inflation and a substantial downward revision to job growth has all but sealed the deal for at least a 25-bp rate reduction at next week’s meeting, longer-term inflation risks remain elevated. Tariff policies continue to work their way through the system, potentially creating inflationary pressures just as the Fed appears increasingly dovish.
This timing mismatch could set the stage for a stagflationary environment in the coming quarters. Nevertheless, today’s data will be crucial in confirming whether the disinflationary trend is broadening beyond producer prices.
US CPI Inflation Expected to Increase at the Headline Level
If we see a lower print in the today, this would certainly increase the odds of a 50-bp reduction next week and open the door to shorting opportunities in the USD and long positions in equities. Personally, I do not envision the Fed cutting by 50 bps unless we see something dramatic today. Ahead of the CPI figures, markets are pricing in 27 bps of Fed easing for this month’s meeting, a total of 68 bps worth of cuts for the year-end, and 146 bps by the end of 2026.
Expectations for the YY CPI data suggest that price pressures rose by 2.9% (from 2.7% in July), with MM expected to rise by 0.3% (from 0.2%). The YY and MM measures are anticipated to remain steady at 3.1% and 0.3%, respectively. I have attached the LSEG calendar for the release, which also shows the maximum and minimum estimates.