Bank of America predicts that US inflation will continue in August. Both the headline and core Consumer Price Index (CPI) are expected to rise by 0.3% from the previous month. This increase is mainly due to higher energy prices, inflation in goods affected by tariffs, and strong demand for non-housing services. The bank expects the yearly headline CPI to rise to 2.9% from 2.7%, which would be the highest level since July of last year. Ongoing inflation may limit the Federal Reserve’s ability to reduce interest rates significantly.

Tariff Effects

Tariffs are still affecting consumers, leading to higher prices for household items, clothing, and recreational products. Bank of America warns that tariffs could continue to push prices higher in the coming quarters, putting pressure on consumers who are already on tight budgets. The US CPI data will be released on Thursday, September 11, 2025, at 0830 US Eastern time, 1230 GMT. With the US inflation report coming out today, we expect another high figure—with a 0.3% monthly rise for August. The anticipated increase to 2.9% year-over-year is driven by steady energy costs and the ongoing impact of tariffs. This outlook suggests the Federal Reserve will struggle to consider significant interest rate cuts soon.

Market Impact

Market players are ready for any surprises. If the actual number deviates from the 0.3% forecast, it could lead to significant market movement. Traders might consider strategies that profit from potential price swings, such as buying straddles on S&P 500 options, especially since implied volatility has been rising before the announcement. If the inflation figure is higher than expected, it could confirm worries about renewed inflation. The interest rate futures market reflects this caution, showing less than a 25% chance of a rate cut at the next Fed meeting. This means betting on lower rates could be risky right now. We see this as a chance to monitor options on Treasury note futures, which may experience increased activity as the market adjusts its expectations for monetary policy in the coming weeks. Strong inflation pressures are backed by a solid labor market, which keeps services inflation high. The latest jobs report from August 2025 showed wages growing at a 4.0% annual rate, encouraging consumer spending. This data makes it unlikely that the Fed will quickly return to its 2% inflation target this year. We recall a similar situation in 2023, when signs of falling inflation were followed by stubborn price pressures that caused the Fed to hold rates longer than expected. History shows that the last phase of bringing down inflation is the most difficult, so traders should be cautious about assuming a straightforward path to lower rates. The lasting effect of tariffs on items like clothing and home goods presents a structural challenge that won’t disappear quickly. This gradual inflationary pressure is squeezing household budgets and is expected to last for several more quarters. This trend supports trades anticipating steady prices for consumer goods. Create your live VT Markets account and start trading now.

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