Kalshi traders forecast annual inflation easing slightly to 3.3% in August even as consumer prices are expected to have risen from July.
The August inflation market forecasts a 3.3% year-over-year increase in the consumer price index, down from 3.4% in July.
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Meanwhile, a separate CPI market prices a 0.4% monthly increase for August.
August’s inflation rate
The August CPI report comes after inflation eased slightly in July and the latest jobs report showed stronger-than-expected hiring.
Kiplinger’s Karee Venema noted that annual inflation eased to 3.4% in July, while the latest jobs report showed the unemployment rate holding at 4.1%. The forecasts would represent an unusual combination: annual inflation easing from 3.4% to 3.3% while monthly price growth accelerates from 0.1% to 0.4%.
“Consumer prices rose a modest 0.1% in July from June, and the 12-month inflation rate dipped slightly to 3.4%, as gasoline prices fell 2.9%,” wrote David Payne, a staff economist and reporter for The Kiplinger Letter. “A beneficial 0.8% decline in drug costs and only a modest rise in the cost of groceries also contributed to the low July number.”
Fed Interest Rates
The August CPI report could also influence the Federal Reserve's next interest-rate decision.
“If the August report is not terrible, then the Fed will probably leave interest rates unchanged,” Payne said. “However, if the August report looks worse, as we expect it will, then the pressure will build on the committee to start raising short-term rates by a quarter of a percentage point at that meeting and the two following meetings in October and December.”
The CPI report will also follow a stronger-than-expected August employment report. CNBC’s Sean Conlon reported that nonfarm payrolls increased by 162,000 in August, well above the Dow Jones forecast of 53,000, while unemployment held at 4.1%.
Fed Chair Kevin Warsh described the labor market as “quite stable” in an Aug. 28 speech at the Jackson Hole Economic Symposium.
“What’s been happening in the market now is that it’s the tug of war between those who are worried that the Fed will be raising rates and those who think that the Fed will remain on the sidelines,” said Sam Stovall, the chief investment strategist at CFRA Research.
Investors remain divided over whether inflation will prompt the Fed to resume raising rates. Higher energy prices could also put upward pressure on August's headline CPI reading.
The Financial Times reported that higher oil prices are expected to contribute to headline inflation. Core CPI excludes volatile food and energy prices and is closely watched for signs of underlying inflationary pressure.
“Analysts at Barclays said the headline figure was likely to have been driven by an increase in oil prices during the month, as the U.S. war in Iran continues to disrupt global flows,” the paper reported. “But the Fed is likely to pay closer attention to the core reading, as an external oil shock is outside the central bank’s scope of influence.”
For now, that combination puts Thursday's report squarely in focus, with traders and economists alike watching to see whether the numbers tip the scales on the Fed's next interest-rate decision.
The takeaway:
Kalshi markets now predict
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