Goldman Sachs predicts an increase in U.S. inflation for August. They expect core CPI to rise by 0.36% month-on-month, which is a bit higher than the consensus forecast of 0.30%. As a result, the annual core CPI rate would reach 3.13%. Headline CPI is expected to grow by 0.37% month-on-month, mainly due to higher food prices (+0.35%) and energy costs (+0.60%). Additionally, car and airfare prices might also push inflation up.

Tariffs Drive Up Inflation

The bank pointed out that tariffs are making inflation worse, especially in areas like communications, furniture, and recreation. These tariffs, set by policies from President Donald Trump, are likely to keep the monthly core CPI around 0.3% for now. However, besides tariffs, economists think inflation will cool down soon. This is because there are soothing pressures in the housing and labor markets. The inflation data is set to be released on Thursday, September 11, 2025, at 08:30 AM ET, or 12:30 PM GMT. With the August inflation report coming out tomorrow morning, we are preparing for a possible surprise in the numbers. The 0.36% rise forecast for core prices is above the general market expectation, indicating that current market valuations might be too relaxed. This scenario suggests trades that benefit from a more aggressive Federal Reserve policy adjustment right after the report. We are particularly watching options on short-term interest rate futures, which currently do not reflect a high chance of a rate increase. According to CME FedWatch data, the market is predicting only a 15% chance of a hike before the end of 2025. If inflation is higher than expected tomorrow, those odds could easily double or triple, leading to a sharp decline in Fed Funds and SOFR futures prices.

Effects on Market Volatility

Such a surprise in inflation would likely lead to a surge in market volatility from its currently low levels. The VIX index, which measures expected market volatility, has risen by over 20% on days with major inflation surprises, similar to what we observed several times in 2022. Buying VIX call options or front-month futures offers a straightforward way to capitalize on the uncertainty that would accompany a higher-than-expected inflation report. We also need to remember that the inflation trend is expected to cool off when the impact of tariffs fades. This means a strong market reaction tomorrow could be excessive, creating a chance for a rebound. If short-term yields spike sharply, we might consider taking positions that bet on a decline in those yields over the next few weeks as the market realizes the core issues are temporary. The report’s focus on tariffs affecting specific items like furniture and recreation provides a targeted trading strategy. We can use equity options to invest against sectors most affected by these price hikes and the resulting drop in consumer demand. Observing how consumer discretionary stocks reacted to tariff announcements earlier in 2025 gives us useful insights into which companies are most at risk. Create your live VT Markets account and start trading now.

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