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last friday's us non-farm night made the expectation of the federal reserve cutting interest rates by 25 basis points this month the mainstream in the current market. whether this tilt of the "balance" of interest rate cut expectations will continue until the federal reserve's interest rate meeting next week, tonight may be the last "decisive moment"...

according to the schedule, the u.s. bureau of labor statistics will release the august cpi report at 8:30 tonight beijing time.

although the influence of inflation data has gradually retreated to non-farm data in terms of macroeconomic factors that determine the path of us interest rates, tonight, no wall street trader may dare to easily shift his attention elsewhere.

this cpi report, released a week before the fed's interest rate meeting, is not powerful enough to help people lock in the fed's expectation of a 50 basis point rate cut this month, but as long as the data is further below expectations, it should at least keep the hope of a 50 basis point rate cut. on the other hand, if the data unexpectedly exceeds expectations, it can almost be said that the prospect of a 50 basis point rate cut this month has been shattered in advance, and people can already prepare for a 25 basis point rate cut in advance!

so, how will tonight’s cpi data perform?

u.s. august cpi data expectations at a glance

let's first take a look at wall street's expectations for tonight's cpi data:

after the cpi returned to the "2 era" in july, economists from institutions currently receiving media surveys expect that the year-on-year growth rate of the us cpi in august is expected to fall further to2.6%(2.9% in july), expected to rise month-on-month0.2%(unchanged from +0.2% in july).

excluding volatile energy and food prices, core cpi is expected to rise year-on-year in july.3.2%, up month-on-month0.2%, which are consistent with the previous month.

the following chart is a summary of the forecasts of major investment banks by nick timiraos of the new fed news agency:

it is not difficult to see that industry institutions are relatively optimistic about the decline in the year-on-year increase in cpi in august.——the mainstream estimate of 2.5%-2.6% is a sharp drop of 0.3-0.4 percentage points from 2.9% in the previous month, which is a relatively obvious drop in the absolute value changes over the past months.

as for the month-on-month forecast of core cpi, which may be more valued by federal reserve officials, this time the industry's forecast distribution for this data is very symmetrical. in the bloomberg survey, 5 analysts expected the core cpi to rise by 0.3%, 4 analysts expected it to rise by 0.1%, and the rest predicted it to rise by 0.2%.

the highest forecasts for core cpi (+0.3%) are from bnp paribas, pantheon, wells fargo and natixis; on the other hand, the four institutions that expect core cpi to rise by only 0.1% are royal bank of canada, td securities, desjardins and helaba.

where will the downward trend in inflation be reflected?

in terms of specific cpi sub-items, the decline in oil prices in august will undoubtedly continue to make a significant contribution to the continued cooling of the overall us cpi.affected by recession fears and demand concerns, international oil prices fell by more than 5% last month, and gasoline prices in the united states also fell significantly. it is foreseeable that the positive effects of cooling inflation in this area are likely to continue until september - brent crude oil prices fell below $70 per barrel on tuesday.

among some of the other most watched price areas, the industry generally expects that rental inflation will decline in august after rebounding in july.that would put rent inflation back on the long-expected downward trend that began in june. since housing accounts for the largest share of the cpi, slower rent increases would give other service categories, such as health care and airfare, some wiggle room after unusual july declines, without having a big impact on overall inflation.

“we believe the bureau of labor statistics’ all-tenant return rent index (atrr) is the most reliable leading indicator, which suggests that official rent inflation is declining,” nomura securities economists aichi amemiya and others said in a sept. 5 data preview. “in addition, the supply of rental apartment buildings remains high, so the underlying trend in rent inflation is unlikely to accelerate again in the near term.”

rising car insurance prices have been a big driver of higher service prices over the past two years, but there are signs that insurers may start to slow the pace of price increases in the coming months.

“premium applications appear to have slowed in july, suggesting that the premium increases that insurers are submitting to regulators will not be as large,” morgan stanley economist diego anzoategui said in a preview of a sept. 5 report. “we expect this trend to continue, with a more pronounced deceleration in auto insurance growth for the remainder of the year.”

in terms of core products,in july, the core commodity prices fell by 0.3% month-on-month, the 13th month-on-month decline in the past 14 months, among which the price of used cars fell the most. analysts generally expect that the overall price of core commodities and the price of used cars will fall moderately in august.

another category to watch in the core goods basket is apparel, which posted its biggest price drop since the start of the year in july. analysts are currently divided on whether prices will fall again in august, meaning any big swings could have a bigger impact on the overall inflation reading compared to expectations. seasonal adjustments could pose a downside risk to apparel prices in particular in the august report after pushing them higher at the start of the year, employ america executive director skanda amarnath predicted in a sept. 10 report.

currently, goldman sachs expects the us core cpi to rise by 0.23% in august (the market generally expects an increase of 0.2%), and an increase of 3.17% year-on-year (the market generally expects an increase of 3.2%).the following figure shows goldman sachs' specific outlook for each core cpi sub-item:

how will tonight’s cpi data affect the fed?

according to cme's fedwatch tool, traders in the interest rate futures market currently expect the federal reserve to have a 65% chance of a 25 basis point rate cut at next week's meeting and a 35% chance of a 50 basis point rate cut.

therefore, the role that tonight's cpi data can play is actually quite clear:if the data is higher than expected, it will help people lock in the mainstream expectation of a 25 basis point interest rate cut next week; if the data is lower than expected, it will further ignite the "uncertainty" in the industry about whether the interest rate will be cut by 25 basis points or 50 basis points next week.

fed chairman powell said at the annual meeting of global central banks held in jackson hole, wyoming last month that the time has come to adjust the policy. the biggest suspense in the industry now is how big the fed will take in its first rate cut?

in a preview of cpi data released on september 9, citi economists veronica clark and andrew hollenhorst pointed out thatwhile inflation data is quickly giving way to labor market data in terms of relevance to the fed’s policy decisions, august cpi data could still have an impact due to the inconclusive august employment report.

“given the growing downside risks to the labor market and economic activity, the bar for weaker cpi data to signal deeper rate cuts is likely low,” citi economists said.

wells fargo's economics team, led by jay bryson, wrote in a report to clients last friday that "another benign cpi report could give fomc members enough 'confidence' to believe that inflation is returning to 2% sustainably, thereby supporting a 50 basis point rate cut. on the other hand, if inflation data is hotter than expected, a 25 basis point rate cut at the september meeting is likely to become a consensus."

in terms of market impact,mufg analysts said the data was consistent with the slowing momentum of inflation and was critical to supporting current expectations of a fed rate cut. strong august cpi data would not prevent the fed from cutting rates next week, but such an outcome would further question the aggressive easing bets currently reflected in prices, which in turn should bring upside risks to the dollar.

regarding the trend of u.s. stocks tonight, goldman sachs lists the potential fluctuations of the s&p 500 index under different month-on-month increases in the core cpi.

it is worth mentioning that, slightly different from usual, this time goldman sachs believes that the further the data deviates from the median market expectations (too high or too low), the more unfavorable it will be for the performance of us stocks. in the past, goldman sachs' similar forecasts often believed that the lower the data, the better.

in this regard, the goldman sachs team explained that weak data close to expectations may be the best outcome: this will make the risk of some events a thing of the past, and stock volatility will also be slightly lower in the short term. if the data is considered overheated or too cold, it may bring more uncertainty to the fed's interest rate cut path or the current direction of the us economy.