The highly anticipated August Consumer Price Index (CPI) report from the United States Bureau of Labor Statistics is set to be released on Wednesday and economists and strategists are closely watching for signs of inflation trends. With inflation being a key economic indicator and a subject of intense scrutiny in recent months, these expert opinions provide insights into what to expect from the upcoming report.
Morgan Stanley's Projections
Morgan Stanley economists have estimated that core inflation will likely remain close to the 0.2 percent month-over-month mark, with an expected increase of 0.18 percent for the month of August. This projection is slightly higher than the figures for July and June, which stood at 0.16 percent. However, it falls below the consensus estimate of 0.2 percent. Morgan Stanley believes that higher energy prices will boost the headline Consumer Price Index (CPI) to 0.61 percent. The main driver of disinflation in August, according to the firm, is expected to be core goods, which are likely to experience another negative print.
TD Securities' Insights
TD Securities predicts that core-price inflation is likely to remain stable in August, printing a third consecutive 0.2 percent month-over-month gain. The influence of goods inflation, along with shelter prices as a wildcard factor, is expected to impact the overall CPI. Additionally, firming gas prices are anticipated to drive non-core inflation higher. TD Securities' forecasts suggest a 3.6 percent year-over-year increase for total/core prices.
eToro Analyst Farhan Badami's Perspective
Farhan Badami, a market analyst at eToro, views this data release as significant, with many hoping for a continued slowdown in inflation to potentially prompt the Federal Reserve to reconsider its hawkish stance. He highlights the distinction between headline inflation, which includes household essentials, and core inflation, which excludes food and energy prices. This differentiation is seen as crucial for analysts to detect longer-term economic trends without the influence of volatile food and energy prices.
Wells Fargo's Projections
Wells Fargo forecasts that core CPI will have gained 0.18 percent in August, leading to a 4.3 percent year-over-year rate. If realized, this would mean that the Federal Reserve could achieve its elusive 2 percent target on a three-month annualized basis. The bank anticipates that commodities and shelter are likely to have played key roles in this deceleration. However, a roughly 10 percent increase in gas prices is expected to boost the headline rate to 0.6 percent, marking the largest monthly jump in headline CPI in over a year. Despite recent progress in core inflation, Wells Fargo believes it's unlikely that the Fed will meet its 2 percent target on a sustained basis in the coming quarters.
Capital Economics' Insights
According to Capital Economics, a surge in gasoline prices is expected to result in a renewed jump in headline inflation in August. Gasoline prices are estimated to have risen by a substantial 12 percent month-over-month in seasonally adjusted terms, adding 0.4 percent to the headline CPI. While some reversal of this jump is anticipated in the following month, core prices are expected to continue rising moderately. The firm also suggests that downward pressure on core goods prices will persist, and there may be a further reduction in the pace of monthly rent increases. Capital Economics predicts that while headline prices may surge to 3.7 percent in August, the core rate, helped by favorable base effects, will fall back to 4.3 percent.
Oxford Economics' Outlook
Oxford Economics expects that Treasury rates will remain elevated in the near term. Steady Federal Reserve policy through the first quarter of 2024 is likely to limit declines in front-end rates. However, the gradual nature of further declines in some inflation categories will sustain modest pressure on yields further out the curve. The long-end of the yield curve is anticipated to lead yields lower later in the year as the economy slows and inflation continues to improve gradually. Market participants are also expected to position themselves for the possibility of the first rate cuts in 2024.
As the release of the August CPI report approaches, financial markets and policymakers will be closely monitoring these predictions to gain insights into the state of inflation and its potential implications for the U.S. economy.
