Key Takeaways
The upcoming August Consumer Price Index report may reveal a potential 0.6% monthly surge in inflation. Economists anticipate a significant deviation from recent inflation data, raising concerns dormant for over a year.
In the wake of the Apple Wonderlust event, market focus now turns to Wednesday morning’s release of the Consumer Price Index (CPI) inflation data.
Forecasts suggest that this forthcoming inflation report is poised to deviate notably from its recent predecessors, rekindling concerns that have lain dormant for over a year.
August Inflation Projections: Economist Forecasts
Economists are predicting a substantial year-on-year surge in the overall CPI index for August, estimating a rate of 3.6%. This represents a notable increase from the 3.2% recorded in July.
More concerning is the projected monthly price pressure, which could escalate to 0.6%, a significant rise compared to the modest 0.2% observed in July. If this prediction holds, it would mark the most substantial monthly increase since June 2022.
The anticipated rise in the overall inflation rate for August is attributed to a spike in energy prices.
On a positive note, the core inflation rate, excluding energy and food components, is forecasted to decrease from July’s 4.7% year-on-year to 4.3% in August.
Core inflation is expected to maintain a steady 0.2% pace every month, mirroring July’s figures.
In the lead-up to this crucial data release, market sentiment indicates a 93% probability, as indicated by Fed Futures, that the Federal Reserve will maintain unchanged interest rates during the upcoming Federal Open Market Committee Meeting.
Read also: CPI Report Countdown: 5 ETFs Bracing For August’s Inflation Numbers
Chart: Potential for Significant Monthly Surge in CPI
Market Impact of Monthly Inflation Reports: A Historical Perspective
Over the past decade, there have been only 11 instances where monthly CPI readings hit or exceeded the 0.6% threshold.
These inflationary episodes occurred between April and June 2021, from October 2021 to March 2022, and again in May and June 2022.
June 2022 notably marked the zenith of the post-pandemic inflationary surge. The CPI was surging at an extraordinary month-on-month rate of 1.2%. The CPI report for June 2022 was disclosed on July 13, 2022. It had significant effects on major asset classes, leading to the following daily changes:
- SPDR S&P 500 ETF Trust (SPX) down 0.5%
- Invesco QQQ Trust (QQQ) down 0.2%
- Dow Jones Industrial Average ETF (DIA) down 0.7%
- SPDR Gold Trust (GLD) up 0.5%
- US Dollar Index (DXY) down 0.1%
- iShares 20+ Year Treasury Bond ETF (TLT) up 1.2%
The May 2022 CPI report, unveiled on June 10, 2022, displaying a monthly inflation rate of 0.9%, triggered even more pronounced responses: the S&P 500 plummeted by 2.9%, the Nasdaq 100 experienced a sharp 3.6% decline, and the U.S. dollar surged by 0.9%
