The US CPI report coming out soon will shed light on how recent tariffs are affecting prices. The core CPI is a major focus, with experts predicting a monthly increase of +0.3% for August, the same as July. More specifically, the core CPI is estimated at +0.32% month-over-month, consistent with July’s report. Year over year, the core CPI is expected to increase by +3.1% for August, closely matching July’s adjusted figure of +3.06%. The previous rise in core prices was mainly due to higher service costs, not goods, which offers some relief regarding tariff effects. Energy prices are anticipated to recover, expected to rise by 0.8% after a 1.1% decline in July. Food prices are also projected to increase.

Core Goods Prices and Market Expectations

Core goods prices are crucial, with MNI predicting a +0.30% month-over-month increase, up from July’s +0.21%. Markets are considering whether a 50 basis point rate cut is needed, depending on how the inflation figures compare to expectations. By the end of the year, there could be about 68 basis points in rate cuts, but unexpected inflation might change this. The CPI results will guide the Fed’s messaging for upcoming decisions next week. With the August CPI report set to release today, September 11, 2025, we are closely watching the effects of recent tariffs. The market expects core prices to rise by 0.3%, but the key will be whether this increase comes from goods or services. A significant rise in core goods could indicate that inflation is becoming a larger issue. This follows the Producer Price Index report from yesterday, which showed a 0.5% increase in input costs for finished goods, marking the highest rise since March. This data indicates that companies are facing higher expenses, making it likely that today’s report will show an increase in core goods prices. For traders, this increases the chances that the Fed will ease off on rate cuts later this year. We should closely monitor December 2025 Fed Funds futures contracts after the release. Currently, the market is anticipating around 68 basis points worth of cuts by year-end, but a strong inflation report might adjust that to only 50 basis points. This would suggest that the market no longer expects a third rate cut after the September and October meetings.

Market Reactions and Future Rate Cuts

The stubborn inflation we faced in 2022 and 2023 has shown us that the Fed is reluctant to cut rates when price pressures rise. Even though a 25 basis point cut next week seems likely, a surprising CPI report would give the Fed a reason to take a more cautious approach in future meetings. This would lower expectations for a more aggressive easing strategy. In the options market, the cost of protection against a market downturn is increasing. Implied volatility on short-term S&P 500 options has hit a four-week high of 15.2%, indicating traders are preparing for a major market move. A higher-than-expected CPI reading could lead to a sell-off in equities as hopes for deeper rate cuts fade. On the flip side, if core goods prices remain weak, it would support the view that the impact of tariffs is minimal for now. This would encourage the market to consider a higher likelihood of a 50 basis point cut next week. Such a scenario could lead to falling bond yields and a broad market rally led by tech stocks. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now