US PPI & CPI Week Preview: August Data
After stronger labor market data last week from NFP (Non-Farm Payrolls), traders and investors are looking to the highest-probability outcome to be hot inflation data this week in PPI and CPI, making a 25-basis-point rate hike—taking the cost of borrowing on the dollar up—the most likely scenario.
The August Producer Price Index (PPI) and Consumer Price Index (CPI) reports serve as the final inflation checkpoints before the Federal Reserve’s upcoming September FOMC meeting. Following the recent hot nonfarm payrolls report, these prints carry heightened sensitivity for foreign exchange and global rates. Consensus Forecasts
Producer Price Index (Thursday, Sept 10): Headline PPI YoY is expected at 5.1% (down from 5.3% in July), with MoM wholesale inflation projected to rise around 0.3%. Core PPI (ex-food, energy, and trade) is anticipated to remain sticky at 4.7% YoY.
Consumer Price Index (Friday, Sept 11): Headline CPI MoM is forecast to pick up to 0.3%–0.4% (vs. 0.1% prior) due to higher gasoline costs. Headline CPI YoY is expected to hold near 3.4%. Core CPI (ex-food and energy) MoM is expected at 0.2%, with the YoY core rate easing slightly to 2.4%–2.5%.
Potential Market Deviations & Impact Upside Beat (Hotter Data)
Drivers: Continued pass-through of high crude oil prices driven by Middle East/Strait of Hormuz tensions, or sticky service/shelter costs.
Market Reaction: Pushes interest rate futures to fully price in a hawkish Fed rate hike for September. Drives the US Dollar (DXY) higher, pushes Treasury yields upward, and exerts selling pressure on tech equities and stock index futures.
Downside Miss (Cooler Data)
Drivers: Accelerated decline in core goods, normalization in leisure/travel services, or lower wholesale margins.
Market Reaction: Weakens arguments for immediate Fed tightening, offering relief to rate-sensitive equities (such as the Nasdaq-100) and bond markets while pressuring the US Dollar.
Asymmetric Risk
Because labor market strength has already heightened rate-hike fears, the market remains more vulnerable to an upside surprise in Core CPI. High crude oil prices mean headline inflation may stay elevated, placing extra emphasis on the core readings to gauge underlying pressure. Central Bank Dilemma and Dovish Surprise Potential
With this being the last inflation data print before the next Fed decision and meeting, it is very significant psychologically to the collective.
Then again, with it so expected to come in hot, there could be a scenario where there is a big deviation surprise and inflation comes in a lot cooler than expected, throwing a spanner in the works of the whole thing. It puts the US central bank and Kevin Warsh on the back foot, where they don't know whether to pause again on interest rate hikes or cuts on the dollar to await more data so they don't hike into cooling inflation.
If this surprise does come and Fed rate hike expectation percentages are revised, then we could see a risk-on rally with the dollar coming down in value somewhat and a risk-on environment for equities—especially the US stock market and the Russell 2000 small-cap even more so, which is a lot more rate-sensitive to borrowing costs than the mega-market-cap stocks. Even so, we will see a big rally in the NASDAQ potentially in that scenario.