Inflation Data to Test Fed Rate Outlook as Futures Markets Weigh in on Hike Chances

The upcoming week will bring crucial data releases that could sway the Federal Reserve's interest rate outlook. The July Consumer Price Index (CPI) and Producer Price Index (PPI) reports, due on Wednesday and Thursday respectively, are expected to show moderate inflation growth. According to the Cleveland Fed model, CPI is projected to rise 0.1% month-over-month and 3.4% year-over-year, while core CPI is seen increasing by 0.2% m/m and 2.5% y/y.

The June PPI Final Demand rose 5.5% y/y, with the measure excluding trade services reaching 6.1%, and the core measure firming to 5.1%. These numbers could influence the Fed's decision on whether to raise interest rates at their September meeting, where futures markets currently price a roughly 43% chance of a 25 bps hike.

Additionally, the July retail sales report on Friday will be closely watched, following a June increase of 6.7% y/y. The Redbook same-store sales index has been slipping but remains high at 8.2% y/y for the week of July 31.