Core Insights - The U.S. inflation data is expected to show a year-on-year CPI increase of 3.1% for September, marking the highest inflation rate since May 2024 and indicating a fifth consecutive month of acceleration [1] - The core CPI is also anticipated to remain at 3.1%, reflecting persistent inflationary pressures [1] Group 1: Inflation Trends - The CPI data may have a slightly higher sampling error due to increased reliance on online surveys during the government shutdown, which lasted three weeks [3] - Despite rising prices, lower rent increases may help to moderate the overall inflation rate [3] - The current inflation rate has decreased from 3% in January to 2.9% in August, but it still exceeds the Federal Reserve's target of 2% [8] Group 2: Economic Implications - The recent rise in inflation highlights the impact of tariffs, which have contributed approximately 25-30 basis points to the core CPI year-on-year [6] - Economic growth expectations are being adjusted upward as inflation surpasses the Federal Reserve's target, with businesses warning of impending price increases [6] - The Federal Reserve's preferred inflation measure, the personal consumption expenditures price index, has risen from a recent low of 2.3% in April to 2.7% in August [8] Group 3: Market Reactions - The upcoming CPI report is expected to create significant market volatility, regardless of the data outcome, as it is the first major report since the government shutdown [10] - If inflation exceeds expectations, gold prices may face downward adjustments, while weaker inflation data could reinforce expectations for multiple rate cuts by the Federal Reserve before year-end [11] - A significant deviation in core CPI from expectations could either alleviate or exacerbate market concerns regarding inflation and the Federal Reserve's policy space, impacting stock market performance, particularly in interest-sensitive sectors [11]

Core Insights - The U.S. government shutdown has entered its fourth week, leading to a "data famine" on Wall Street, with the delayed release of the Consumer Price Index (CPI) report expected to miss its optimal impact on the market [1] - The market anticipates a core CPI increase of 0.3% for September, slightly below expectations, with tariff pressures expected to raise prices in categories like communications and household goods [1][2] - Despite potential higher CPI data, the market's view on the Federal Reserve is unlikely to change significantly, with nearly 100% certainty that a 25 basis point rate cut will occur in the upcoming meeting [1][4] CPI Predictions - Predictions for the core CPI vary, with estimates ranging from 0.2% to 0.4%, but the majority expect a 0.3% increase [2] - Goldman Sachs forecasts that the impact of tariffs will contribute approximately 0.07 percentage points to core inflation, primarily affecting sensitive categories [2][3] - Excluding tariff effects, underlying inflation pressures are diminishing, supported by a decrease in housing rent and labor market contributions [2] Tariff Impact and Market Sentiment - The uncertainty surrounding the timing and extent of tariff transmission to consumer prices is a key focus for Wall Street [3] - BNP Paribas views the September CPI as a critical checkpoint, suggesting a downward risk due to moderate housing costs and limited tariff transmission [3] - Citi expects a core CPI increase of 0.28%, indicating that weakening labor and housing markets are reducing inflation risks, supporting further easing by the Federal Reserve [3][4] Market Reactions and Federal Reserve Outlook - The CPI report is unlikely to alter market expectations for a rate cut, with projections indicating a total of 54 basis points of cuts by year-end [4][5] - Market volatility is anticipated if CPI data exceeds expectations, with some analysts viewing it as a buying opportunity due to strong economic fundamentals [7] - The Federal Reserve's recent meeting minutes reveal a divergence in views among officials regarding inflation and labor market conditions, with a consensus that inflation impacts are diminishing [5][7]

Core Insights - Morgan Stanley anticipates that the upcoming US Consumer Price Index (CPI) report for September will show core CPI remaining elevated, with overall inflation slightly above core inflation due to factors such as tariff costs and rising energy prices [1][3] - The firm predicts a month-over-month increase of 0.32% in core CPI and a year-over-year increase of 3.12%, marking the fourth consecutive month of positive core goods inflation, primarily driven by the gradual transmission of tariff-related costs to consumers [1] - The estimated contribution of tariffs to year-over-year core CPI is projected to rise to 35 basis points if the data meets expectations, approaching half of the total expected impact of tariffs [1] Inflation Performance - Overall CPI is expected to outperform core CPI, with a month-over-month increase of 0.41%, driven by a significant rebound in energy prices, which are forecasted to rise by 2.00% [3] - In contrast, food price inflation is expected to slow down, with a projected month-over-month increase of 0.19%, lower than August's 0.46% [3] Specific Categories - Core goods prices are anticipated to continue a moderate increase, despite a slowdown in the growth rates of clothing, new cars, and used cars, while other categories are expected to accelerate after an unexpected decline in August [5] - Housing rent is projected to see a slight pullback, with month-over-month growth expected to be below 0.30% [5] - Core services inflation, excluding housing, is expected to rebound to 0.40%, primarily driven by medical services, while growth in airline ticket prices and hotel rates is expected to weaken [5] Key Observations - The speed of tariff transmission is ongoing but appears to be slowing, with ISM and PMI price indicators remaining high but recently declining, reducing the likelihood of core goods month-over-month growth exceeding 0.4% [5] - Auto insurance inflation is expected to continue to slow, with year-over-year growth potentially dropping below 2% by Q1 2026 [5] - Seasonal adjustment factors for used car CPI may distort policymakers' interpretation of inflation data [5] Personal Consumption Expenditures (PCE) - Morgan Stanley forecasts a month-over-month increase of 0.30% in the core Personal Consumption Expenditures (PCE) price index, slightly above the previous month's 0.23% [5] - Financial services inflation is expected to remain high at 0.53%, reflecting strong stock market performance in July and August, while medical services inflation is projected to rise from 0.09% in August to 0.50% [5] - Core services PCE, excluding housing, is expected to see a month-over-month increase of 0.32% [5]

Group 1 - The core viewpoint of the article indicates that the CPI growth in August has rebounded due to food and energy, but the slow transmission of tariffs and stable service inflation suggest that inflation will not hinder the Federal Reserve's interest rate cuts in the short term [1][2] - The August CPI in the U.S. showed a year-on-year increase of 2.9% (previous value 2.7%, expected 2.9%) and a month-on-month increase of 0.4% (previous value 0.2%, expected 0.3%) [1] - Core CPI remained stable with a year-on-year increase of 3.1% and a month-on-month increase of 0.3%, aligning with market expectations [1] Group 2 - Core goods saw a month-on-month increase from 0.2% to 0.3%, primarily driven by a rebound in used car prices (from 0.5% to 1.0%) [1] - The transmission of tariffs remains slow, with core goods excluding used cars maintaining a month-on-month growth rate of 0.17%, unchanged from July [1][2] - Service inflation remained stable, with rental inflation being the main contributor, although its sustainability is questionable [2] Group 3 - Short-term focus is expected to remain on employment risks rather than inflation, as the slow transmission of tariffs and stable service inflation indicate that inflation will not be a constraint for the Federal Reserve's rate cuts [2] - The labor market's ongoing weakness has not disrupted the consensus on a soft landing, with the market currently favoring rate cut trades rather than recession trades [2] - Concerns about the U.S. inflation pressure persisting after rate cuts need to be monitored, despite the current demand-side weakness slowing tariff transmission [2]

Inflation Overview - In August, the U.S. CPI increased by 2.9% year-on-year (previous value 2.7%, expected 2.9%) and 0.4% month-on-month (previous value 0.2%, expected 0.3%) [9] - Core CPI remained stable at 3.1% year-on-year and 0.3% month-on-month, consistent with July's figures [9] Core Goods and Services - Core goods CPI rose by 0.3% month-on-month, primarily driven by a rebound in used car prices, which increased from 0.5% to 1.0% [13] - Core services inflation remained stable, with rent inflation contributing significantly, while other service categories like medical and leisure services saw a decline [16] Employment Market Concerns - Initial jobless claims rose to 263,000, exceeding market expectations of 235,000, marking the highest level since June 2023 [20] - The labor market's ongoing weakness is expected to keep market focus on employment risks rather than inflation [20] Market Expectations - The market continues to favor "rate cut trades," with a 90% probability of a Fed rate cut in September, and expectations for cuts in October and December as well [22] - Despite the anticipated rate cuts, there are concerns about persistent inflation pressures post-cut, particularly if demand stabilizes [22] Risk Factors - There are renewed concerns regarding the independence of the Federal Reserve and the potential for continued unexpected slowdowns in the U.S. labor market [23]

Inflation Data Summary - In August, the U.S. CPI increased by 2.9% year-on-year, up from 2.7% in the previous month, aligning with market expectations[2] - The seasonally adjusted CPI rose by 0.4% month-on-month, compared to 0.2% previously, slightly exceeding the market forecast of 0.3%[2] - Core CPI remained stable at 3.1% year-on-year and 0.3% month-on-month, consistent with the previous month[2] Inflation Drivers - The increase in CPI was primarily driven by rising prices in food, energy, and housing[3] - Food prices rose by 0.5% month-on-month, with beef prices significantly increasing by 2.7%[4] - Energy prices saw a month-on-month increase of 0.7%, recovering from a decline of 1.1% in the previous month[4] Market Expectations and Fed Policy - The current inflation trend suggests a controlled environment for further interest rate cuts, with a 25 basis point cut expected in September[3] - Market expectations for a 25 basis point cut in October have risen to 82.1%, up from 73.9% the previous day[7] - The probability of another 25 basis point cut in December is at 75.4%, increasing from 68.1%[7]

Inflation Overview - August CPI in the U.S. rose to 0.38%, exceeding the expected 0.3%[1] - Core CPI remained stable at 0.35%, with a year-on-year increase of 3.1%[1] - Food and energy prices contributed significantly to the CPI increase, with energy prices rebounding to 0.69% from -1.07% in July[6] Tariff Impact - The transmission of tariffs to prices remains manageable, with core goods inflation driven mainly by new and used car prices[2] - Tariff-sensitive categories showed moderate growth, indicating limited inflationary pressure from tariffs[2] - The effective tariff rate increase was less than anticipated, with companies absorbing part of the tariff costs[2] Employment Market Signals - Initial jobless claims rose unexpectedly, signaling a slowdown in the labor market[1] - Excluding Texas, initial claims align with historical seasonal patterns, suggesting a gradual weakening rather than a sharp decline[2] - Market expectations for a 25 basis point rate cut in September are now fully priced in, with a 13% chance for a 50 basis point cut[1] Market Reactions - U.S. Treasury yields fell by 5 basis points, with 2-year and 10-year yields at 3.50% and 4.00%, respectively[1] - The U.S. dollar index decreased by 0.4% to 97.6, while U.S. stock markets saw an uptick[1] Risk Factors - Potential risks include higher-than-expected tariff transmission to inflation and a faster-than-expected decline in the U.S. labor market[3]

Core Viewpoint - The actual tariff implementation in the US during the first half of the year was less than expected, leading to a moderate rise in inflation. The average import tariff rate is expected to increase in the second half, potentially accelerating price increases by companies, which may result in a "slow heating" inflation scenario in the US [1][3]. Tariff Policy - As of June, the actual average import tariff rate in the US increased by only 6.6 percentage points compared to the end of 2024, which is significantly below market expectations. The low tariff collection is attributed to changes in import structure and a low proportion of taxable goods. The average import tariff rate is expected to rise further in the second half of the year due to the implementation of new tariff rates and gradual enforcement of industry tariffs [1][2]. Overseas Exporters - The US import price index, which reflects the dollar prices paid by importers excluding tariffs, shows no significant decline in import prices for most goods since the implementation of reciprocal tariffs in April. Although overseas exporters may lower prices due to a weaker dollar since 2025, the extent of this price reduction may be offset by the dollar's depreciation. Overall, US import costs have not shown a significant decline, and the burden of tariff costs primarily falls on US companies and consumers [2]. US Companies - As of June, US companies bore approximately 63% of the tariff costs, while consumers accounted for less than 40%. As inventory is gradually consumed and trade policy uncertainty decreases, companies are expected to continue raising prices. However, given the current sensitivity of consumers to prices, companies may still need to absorb a significant portion of the tariff costs [2]. Consumer Inflation - Certain goods, such as auto parts, new cars, clothing, and furniture, have a high dependency on imports. However, the transmission of tariffs to prices for new cars, clothing, personal care items, and other durable goods remains limited. If the average import tariff rate in the US rises by 10% within the year, and demand remains stable, tariffs could push the PCE year-on-year growth rate to 3.1% and the core PCE growth rate to 3.4%. Conversely, a significant drop in demand could alleviate inflationary pressures in the US [3].

Group 1 - The core CPI in the US for July 2025 ended a five-month streak of underperformance, with a month-on-month increase of 0.2%, aligning with expectations, while core CPI rose by 0.32% [1] - The US economy is facing uncertainties, with signs of weakening consumer market momentum and cautious corporate investment, leading to speculation that the Federal Reserve may consider interest rate cuts despite current inflation data [1] - Market expectations have shifted towards a "rate cut anticipation leading to a reinforced soft landing expectation," resulting in declines in the 2-year Treasury yield and the dollar index, while 10-year TIPS, 10-year Treasury yields, and US stocks have risen [1] Group 2 - The July PPI data indicates that tariff pressures may have been transmitted to US wholesalers, with a month-on-month increase of 0.95%, significantly exceeding the expected 0.2%, and core PPI rising by 0.92%, the highest since 2022 [2] - The impact of tariffs on wholesale, retail, and end-consumer prices remains uncertain, and the market's expectation for a September rate cut is not guaranteed due to the variability in data quality [2] - In optimistic scenarios, the Federal Reserve may cut rates twice this year, while in pessimistic scenarios, only once in October; looking ahead to mid-2026, a new Fed chair may lead to a more accommodative monetary policy with potential rate cuts ranging from 4 to 6 times next year [2] Group 3 - Prior to the September FOMC meeting, the dollar index and 2-year Treasury yield are expected to rise, reflecting a correction of overly optimistic rate cut expectations [3] - Following the September FOMC, market bets on rate cuts in 2026 are anticipated to increase, with concerns about the Fed's independence and debt sustainability likely to widen the yield spread between 2-year and 10-year Treasuries [3] - Recent discussions between Trump and Putin regarding the Russia-Ukraine conflict may enhance short-term market risk appetite, potentially leading to downward pressure on gold prices as safe-haven sentiment diminishes [3]

Inflation Data - In July, the U.S. CPI year-on-year growth was 2.7%, unchanged from June and below the market expectation of 2.8%[6] - Core CPI rose to 3.1% year-on-year, up from 2.9% in June, slightly exceeding market expectations of 3.0%[6] - Month-on-month CPI growth fell by 0.1 percentage points to 0.2%, aligning with market expectations, while core CPI increased to 0.3%[6] Core Goods and Services - Core goods inflation was supported by a rebound in transportation goods, particularly used cars, which saw a month-on-month increase of 1.2 percentage points to 0.5%[10] - Tariff-sensitive goods experienced a slowdown in growth, with furniture, clothing, and leisure goods showing reduced month-on-month growth rates compared to June[11] - Core services inflation was driven by strong performance in medical services and transportation, with the airline ticket component rising by 4.1 percentage points to 4.0%[15] Federal Reserve Outlook - The July CPI data reinforced market expectations for a Federal Reserve rate cut in September, with a 94% probability of a 25 basis point cut[22] - The market anticipates three rate cuts in 2025, with expected cuts in September, October, and December[22] - Concerns remain regarding the persistence of core service inflation, which may complicate the Fed's decision-making process regarding consecutive rate cuts[24] Risks and Considerations - The transmission of tariffs to core goods inflation remains slow, influenced by factors such as consumer demand and corporate pricing strategies[23] - The labor market's stability and upcoming employment data will be critical in shaping future Fed policy decisions[24] - Risks include potential concerns over the Fed's independence and the possibility of a stronger-than-expected labor market[25]