• The US Consumer Price Index is expected to rise by 3.4% YoY in August, matching July’s increase.
• Annual core CPI inflation is expected to edge lower to 2.4% from 2.5%.
• Inflation report could significantly influence the market pricing of next week’s Fed decision and the USD performance.

The US Bureau of Labor Statistics (BLS) will publish the August Consumer Price Index (CPI) data on Friday. The report is expected to show a small decline in annual core inflation. Any divergence from analysts’ estimates could influence the Federal Reserve’s (Fed) policy outlook and impact the US Dollar’s valuation.

The monthly CPI is forecast to rise by 0.4%, following the 0.1% increase recorded in July, while the annual reading is seen holding steady at 3.4%. Core CPI figures, which exclude volatile food and energy prices, are expected to post an increase of 0.2% and 2.4%, on a monthly and yearly basis, respectively. 

Following a nearly 22% surge in July, Crude Oil prices held steady in August, ending the month virtually unchanged as the US and Iran keep failing to reach a solution to restore naval activity in the Strait of Hormuz, while avoiding further escalation in military action.

US core CPI data seen contained as goods weakness offsets firm services

According to economists at TD Securities, the upcoming US CPI report should show that “underlying inflation stayed under control in August,” with “the core expected to rise 0.19% m/m.” They expect “the services segment [to] be the main driver of inflation, while core goods prices likely acted as a drag, posting a modest m/m drop.” On an annual basis, TD Securities projects that “core CPI rose 2.3% on a y/y basis, down 10 bps vs July, while headline inflation likely stayed unchanged at 3.4% y/y.” The bank cautions that “risks to our forecasts [are] skewed to the upside” given their assumption of “a number of large price declines in tariff-exposed goods categories.”