The Bureau of Labor Statistics (BLS) is set to release the highly anticipated Consumer Price Index (CPI) inflation data for July on Wednesday at 12:30 GMT, with market participants bracing for significant volatility in the US Dollar (USD).
The upcoming CPI report is crucial, as any deviations from expectations could notably affect the market’s projections for a Federal Reserve (Fed) interest rate cut in September.
Inflation Forecasts:
The annual inflation rate for July is anticipated to rise by 2.9%, slightly down from June’s 3% increase. Core CPI, which excludes the more volatile food and energy sectors, is expected to edge down to 3.2% from 3.3%.
On a monthly basis, CPI is forecasted to increase by 0.2% in July, reversing a 0.1% decline recorded in June. Core CPI inflation is also expected to show a 0.2% rise.
The recent disappointing jobs report, which revealed a 114,000 increase in Nonfarm Payrolls for July, has fueled expectations for the Federal Reserve to initiate multiple rate cuts this year, starting in September. Following the July 30-31 policy meeting, Fed Chairman Jerome Powell did not commit to a September rate cut but indicated that the possibility was under serious consideration. Powell also noted that the Fed remains vigilant about risks on both sides of its dual mandate.
Current projections, according to the CME FedWatch Tool, suggest a nearly 50% chance of a 50 basis points (bps) rate cut in September.
In previewing the July inflation data, TD Securities analysts noted, “While core CPI is expected to gain some momentum, we anticipate it will remain largely controlled in July after an unexpected contraction in June. Headline inflation likely strengthened month-over-month, supported by a rebound in energy prices following sharp declines in May and June. Our unrounded core CPI forecast of 0.14% month-over-month suggests a higher risk of a rounded 0.2% increase.”
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