CPI Report Could Give Fed Room to Delay Rate Hike

The upcoming consumer price index (CPI) report could give Federal Reserve policymakers room to delay an interest rate hike, according to economists. The Bureau of Labor Statistics will release the July CPI data on Wednesday at 8:30 a.m. ET, with economists predicting only a modest monthly increase across key measures.

The Dow Jones consensus forecast calls for a 0.1% rise in the headline all-items figure and a 0.2% increase in the core reading, which strips out volatile food and energy prices. On an annual basis, headline inflation is expected to come in at 3.4%, while core is forecast at 2.5%, both down 0.1 percentage point from June's figures.

Although those annual rates remain above the Fed's 2% target, two consecutive muted monthly readings could provide Federal Open Market Committee policymakers with time before acting on interest rates. 'If we get a July CPI report anywhere near my forecast, the balance of the committee is going to look right through the supply shock, and the FOMC will remain on hold for the remainder of the year,' said Joe Brusuelas, chief economist at RSM.

Traders currently assign a 50-50 probability to a rate hike at the September meeting, according to the CME's FedWatch gauge. However, Bank of America is still forecasting three rate increases in coming months, arguing that the July jobs report 'didn't change the overall picture on the labor market, it's stable.'