US CPI PREVIEW 🇺🇸 Friday’s August US CPI report could be one of the most consequential inflation prints in months, with the outcome potentially tipping the balance on whether the Fed hikes rates at next week’s FOMC meeting. Consensus expectations point to headline CPI rising around 0.4% MoM, a sharp acceleration from 0.1% in July, while core CPI is expected around 0.2% MoM. On a year-over-year basis, headline inflation is expected near 3.4%, with core easing to around 2.4%. The expected acceleration in headline inflation is largely an energy story. Energy prices are seen rebounding roughly 2.5% MoM after falling 1.5% in July, driven in part by a 4%+ seasonally adjusted increase in gasoline prices. Food inflation is expected around 0.2%, although risks are tilted toward a slightly stronger 0.3% reading. Underneath the headline, however, the core picture looks much more mixed. Travel-related components could provide upside pressure, with airfares expected to rise around 3% MoM and lodging prices rebounding after two particularly weak months. On the other side, medical-care inflation is expected to moderate, apparel prices could decline, used-car inflation should slow and shelter inflation continues to show signs of cooling. Technology goods are another area worth watching. July saw a sharp 1.4% MoM increase in IT goods, partly reflecting previously announced computer price increases. That impulse is expected to fade somewhat in August, potentially removing another source of pressure from core goods inflation. THE FED DECISION 👀 This is where the report becomes especially important. The Fed enters the release with policymakers debating whether recent disinflation is sufficient to justify patience or whether inflation remains sticky enough to warrant another increase in rates. With the September FOMC decision just days away, the composition of the CPI report could matter almost as much as the headline number. A simple framework for Friday: 🔥 0.3% core: would represent a meaningful upside surprise and could significantly strengthen the case for a 25bp hike. ⚖️ 0.2% core: keeps the decision finely balanced. In that scenario, markets are likely to focus heavily on the unrounded number, shelter, services and the eventual core PCE read-through. 🕊️ 0.1% core: would provide much stronger evidence that underlying inflation is cooling and strengthen the case for the Fed to remain on hold. Markets are already leaning toward a more hawkish policy path. Fed funds futures have roughly 15.5bp of tightening priced for next week, 23bp cumulatively by October and 37bp by year-end, meaning the CPI print has plenty of potential to force a repricing in either direction. Bottom line: don’t just watch headline CPI. Watch core inflation, shelter, services, energy and the PCE read-through. And with consensus sitting almost exactly at the dividing line, even a few basis points could matter. 0.1% = hold gets stronger. 0.2% = debate stays alive. 0.3% = hike risk rises sharply. With the Fed decision just days away, Friday’s CPI could set the tone for rates, the dollar and risk assets heading into the FOMC.(*Walter Bloomberg)