Tomorrow at 1.30pm UK time, the US publishes July's CPI print, the first of only two the Federal Reserve will see before its meeting on 16 September.
It arrives with the September decision finely balanced. Friday's jobs report, which showed the US economy losing 23,000 positions against forecasts for a gain of around 80,000, briefly pushed the chances of a September hike down towards 40 percent. Those odds have since recovered to roughly 52 percent, helped by oil: hopes that the Strait of Hormuz might reopen have faded again, and Brent has climbed from around 82 dollars on Friday to above 89 this morning. With Chair Kevin Warsh offering no guidance of his own, tomorrow's figures will go a long way to deciding which way the balance tips.
What Is Expected
The consensus looks tame. Headline prices are forecast to rise 0.1 percent on the month, after June's 0.4 percent fall, the first monthly decline in six years. Core inflation, which strips out food and energy, is expected up 0.2 percent, taking the annual rate to around 2.5 percent from 2.6, its smallest rise since February.
Inside the report, energy should be cooling. Petrol prices hit a near four-month low in early July before climbing back late in the month, and airfares are expected to ease as jet fuel settled. That is July's story, and crude has already moved on from it. Which sharpens the real question: with the energy shock washing out of the monthly numbers even as it rebuilds on the screen, what is everything else doing?
What People Think
Opinion is genuinely split, and both camps will find their number tomorrow.
The hawks point to consumer prices still 3.5 percent higher than a year ago, a fifth consecutive year above the 2 percent target, and three Fed policymakers who voted for an immediate hike in July. Strategists at J.P. Morgan's wealth arm moved their base case to a September rise earlier this month, arguing that doubts about the Fed's inflation-fighting credibility after the July meeting have "lowered the bar" for a hike, though they note a run of cooler inflation data could remove the need for one.
The other side, including Bloomberg's economists, argues the annual pace of core inflation is heading for its lowest since early 2021, which undercuts the case for drastic action.
One nuance worth holding on the annual rate: last summer's readings were hot, lifted partly by tariff pass-through into goods prices, and those months are now rolling out of the twelve-month window. Last July's core print alone was 0.3 percent, and it drops out tomorrow. So the annual rate is expected to keep cooling over the coming months partly on that arithmetic alone. Our focus is on something different: whether this year's oil shock is bleeding through into core prices, or staying contained as a headline energy story. That is the question tomorrow's monthly core number answers, and it is why the monthly pace matters more tomorrow than the annual rate.
How Markets Are Likely to React
A core reading of 0.3 percent or higher would suggest the oil shock is embedding in the wider economy, with underlying prices running even as July's energy components cool. September's odds would rebuild quickly, lifting the dollar and front-end yields. At the consensus 0.2 percent or below, the report would ease fears that the inflation is embedding and give Warsh room to hold, leaving the Dollar under pressure, with Sterling and Euro the likely gainers. With the hike priced at a coin flip and crude climbing again, tomorrow's number breaks the tie.
For businesses with dollar exposure, the practical point is that this is a scheduled, known event that can move the rate sharply in either direction within minutes of 1.30pm. Two inflation prints decide September. This is the first. If you would like to talk through how to approach it, please speak to the Lamera Capital dealing team.