After the Apple Wonderlust event, the market’s focus is now shifting to Wednesday morning when the Consumer Price Index (CPI) inflation data will be released. The upcoming inflation report is expected to deviate significantly from previous ones, causing concerns that have been dormant for over a year.
Economists are predicting a substantial year-on-year increase in the overall CPI index for August, projecting a rate of 3.6%, which is a notable rise from the 3.2% recorded in July. More worrying is the estimated monthly price pressure, which could climb to 0.6%, a significant increase compared to the modest 0.2% observed in July. If this prediction holds true, it would be the most significant monthly increase since June 2022.
The expected rise in the overall inflation rate for August is attributed to a spike in energy prices. However, 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. On a monthly basis, core inflation is expected to remain steady at a pace of 0.2%, similar to July’s figures.
Leading up to the data release, market sentiment suggests 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.
Looking back at the impact of monthly inflation reports, there have been just 11 instances in the last decade where the CPI readings reached 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 marked the peak of the post-pandemic inflationary surge, with the CPI surging at a remarkable month-on-month rate of 1.2%.
The disclosure of the June 2022 CPI report had notable effects on major asset classes, resulting in changes in the SPDR S&P 500 ETF Trust (NYSE:SPX), Invesco QQQ Trust (NASDAQ:QQQ), Dow Jones Industrial Average ETF (NYSE:DIA), SPDR Gold Trust (NYSE:GLD), US Dollar Index (DXY), and iShares 20+ Year Treasury Bond ETF (NYSE:TLT).
Similarly, the May 2022 CPI report, which displayed a monthly inflation rate of 0.9%, triggered significant responses such as a plummet in the S&P 500, a decline in the Nasdaq 100, and a surge in the U.S. dollar.
Overall, the market is eagerly awaiting the release of the August inflation numbers and is aware of the potential market impact it can have.
