US CPI Report Looms: Markets Bet on Cooling Inflation Amid Rate Hike Uncertainty

The US Bureau of Labor Statistics will release the July Consumer Price Index (CPI) data on August 12, and markets are expecting a cooling inflation trend. The current consensus is that headline inflation will slow down to 3.4% year-over-year, down from 3.5% in June. Core CPI, excluding volatile food and energy prices, is projected to rise 2.5% year-over-year.

The decline in energy prices is driving down headline inflation, with US retail gasoline prices touching a near four-month low in early July. However, core services inflation is expected to rebound moderately in July, mainly due to recovering prices in airfares, communication services, and medical services.

Ahead of the CPI release, markets are dominated by weak employment data from last week's nonfarm payrolls report, which showed a 23,000 contraction in July. This has raised concerns about the labor market and wage growth, with average hourly earnings rising only 0.05% month-over-month.

Despite expectations of cooling inflation, the Federal Reserve may still hike interest rates this year if CPI data comes in hotter than expected. The market is cautious, but a rate hike pivot is not yet confirmed.