We expect the headline CPI MoM for Aug to come at .32% MoM & the core CPI MoM for Aug to come at .29%. This translates to a YoY growth in headline CPI at 2.9% & core CPI at 3.1%. Core goods prices likely rose by 0.4% m-o-m in Aug. Core service inflation appears to have decelerated slightly as airline fares and dental service prices rose at a slower pace than in July. We expect rent inflation essentially moved sideways in August as rent inflation is nearing its terminal run rate. We currently translate this to a 0.30% m/m reading for core PCE. Component wise, unlike July, we expect strength in August CPI to be more concentrated in core goods prices, with services and shelter inflation slowing more. After this print, we continue to expect further tariff pass-through in the coming months as front-loaded inputs are run down, placing the peak in sequential core inflation in October. Lower energy prices could help offset such price pressures on core goods. This week, oil prices fell on the expectation for further OPEC+ production increases, possibly as soon as at the OPEC meeting this Sunday. Our forecast for super core inflation is 0.325% m-o-m, which is still elevated by historical standards. But this has a large scope to go lower. As employment falters, wage growth slows leading to lower service demand and hence lower super core inflation. Implications for Fed: A hot CPI reading (more than our estimates) might reduce the probability of a 50bp move but a softer CPI may boost it by a small degree. We believe the worst of core goods inflation is likely to end by Sep/Oct CPI reading. Fed chair Powell too stated in his JH comments that a "reasonable base case" is for this to be a one-time price level shift rather than a persistent inflation problem. We believe weak consumer demand will force businesses to absorb higher costs for longer. This slowing demand backdrop leaves us expecting an upcoming series of rate cuts from the Fed to 3-3.25% by Mar’26 which has been our view since last 3 months.
