Traders brace for August CPI’s razor-thin 0.2% or 0.3% call
August consumer price index data is due Friday at 8:30 a.m. ET, with core CPI expected to rise 0.2% in August and headline CPI about 0.4%. The report is seen as key to whether the Federal Reserve raises rates next week.
The August consumer price index is due Friday at 8:30 a.m. ET and could shape whether the Federal Reserve raises interest rates next week. The key question is whether core prices rise 0.2% or 0.3%. Markets are leaning toward a hike after Thursday’s producer-price report showed inflation still stubbornly high, even as Wall Street remains highly confident that core CPI will land at 0.2%.
Among 17 economists surveyed by The Wall Street Journal, the median forecast is 0.22%. Every estimate, from 0.16% to 0.24%, rounds to 0.2%. Kalshi traders are also clustered around 0.2%. The prediction market puts core CPI at an 87% chance of exceeding 0.1%, but only a 28% chance of coming in above 0.2%.
Economists expect core CPI, which excludes food and energy, to rise 0.2% in August. That would pull the annual core inflation rate to 2.4% from 2.5%. Headline CPI is expected to rise about 0.4% in August, leaving annual inflation at roughly 3.4%. Fed Governor Christopher Waller has given one of the clearest indications of how officials may react.
Waller said last week he would back holding rates if inflation kept moving toward the Fed’s 2% goal, but he would consider a hike if August inflation “comes in hot.” Three Fed officials already voted to raise rates by 25 basis points at July’s meeting. That leaves unusual focus on a narrow gap. A 0.2% reading would bolster the case for waiting, while a 0.3% print would make the argument for a September hike much stronger. Thursday’s producer-price report added pressure.
Annual PPI rose to 5.4% from 4.8%, and energy prices jumped 4.2% from July. Polymarket traders put the chance of a September hike near 50% at the start of the week. The odds climbed to 63% Thursday after oil surged and producer-price inflation stayed elevated. Several PPI categories used to calculate the Fed’s preferred PCE inflation measure were also firm, so even a 0.2% CPI print may not look completely benign.
The rate-sensitive iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) has come under pressure as Treasury yields climbed, with the 10-year yield approaching 4.9% Thursday. Former Fed economist Vincent Reinhart said markets are “double-dog daring” Warsh to deliver the hike investors have increasingly priced in, after Jackson Hole setup that made a move seem more likely without saying what would trigger it. Truflation CEO Stefan Rust said on Monday that current data did not justify a hike, though he said a larger oil shock could alter that view. Brent has since climbed above 104.
Friday’s CPI report is due at 8:30 a.m. ET. Five days later, the Fed may need to judge whether 0.2% is cool enough to wait or 0.3% is hot enough to push officials toward a hike. Kalshi and have an existing data collaboration agreement.
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