Most analysts don’t see any risk in the upcoming US Consumer Price Index (CPI) report, but Jefferies thinks there could be issues. Many expect core inflation to rise about +0.3% month-over-month for July, while Jefferies predicts a smaller increase of +0.246%. They believe prices for furniture, clothing, and leisure goods will likely stabilize. For overall inflation, there’s an expected +0.172% month-over-month compared to a +0.20% consensus. Jefferies warns that there could be downside risks here too, even if the difference seems small. They highlight that airfare prices can be unpredictable, especially since premium cabin sales have a lesser impact on CPI. If basic economy fares remain flat and seasonal adjustments rise by 2.5%, it might not show in the expected results.

Jefferies’ View on Headline CPI

Jefferies suggests that without these adjustments, the headline CPI could drop to +0.1%. This contrasts with UBS’s view, which expects stronger inflation. The differing opinions of Jefferies and UBS show the variety of expectations before the data is released. More discussions will follow as the session unfolds. There is increasing speculation that the upcoming CPI report might come in lower than expected. While many anticipate a moderate reading, some analyses hint that core inflation could be around +0.2% for July. This belief stems from the idea that recent price increases in items like furniture and clothing may not happen again. Prices for used cars, which have driven inflation in the past, appear to have leveled off. Manheim’s July 2025 index data revealed almost no change, suggesting a potential decrease after adjustments. This view is backed by early travel data showing that premium airline cabin sales are hiding weaknesses in basic economy fares.

Market Reactions and Opportunities

This chance for a lower-than-expected print comes at a crucial time, as the Federal Reserve has kept interest rates steady since December 2024. Market anxiety is evident, with the VIX rising to 17 over the past week. A lower inflation number would likely give the Fed more leeway to consider rate cuts earlier than expected. One way to respond could be to prepare for reduced interest rate expectations and a possible rally in equity markets. This means buying out-of-the-money call options on major indices like the S&P 500 or Nasdaq 100 for the coming weeks. These options provide an affordable way to capitalize on significant, unexpected market rises if inflation comes in low. Another strategy is to anticipate a decline in market nervousness after the report by purchasing VIX puts. We saw a strong market rally in late 2023 when lower inflation prints confirmed that price pressures had peaked. A similar situation now could reduce volatility, making VIX puts a smart investment. If the Fed surprises with a dovish stance, it may weaken the U.S. dollar. Traders could consider buying put options on dollar-linked ETFs or call options on currencies like the Euro. This offers another opportunity to benefit from the market’s reaction to easing inflation concerns. Create your live VT Markets account and start trading now.

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