Understanding the expected range of inflation estimates is vital as deviations from these expectations can cause surprise effects in the market. The distribution of forecasts is also important, with clusters often around specific points, such as the upper bound, influencing market reactions.
Consensus Figures
For the Consumer Price Index (CPI) year-on-year, the consensus is 2.8% (59%), with lower percentages at other points like 2.9% (14%) and 2.6% (2%). Monthly CPI estimates have a strong consensus at 0.2% (65%), with minor variations elsewhere. Core CPI year-on-year has a consensus of 3.0% (61%), while the monthly figure is centred on 0.3% (73%).
Significant deviations from these consensus figures could prompt substantial market movements. For instance, a Core CPI year-on-year figure of 3.2% might lead to a US dollar rally, whereas a 2.9% could result in dollar depreciation. Recent dollar strength likely involved hedging against potential CPI changes, and the Federal Reserve’s focus appears to be shifting towards labour market data. To negate the possibility of a rate cut in September, a Core CPI of at least 3.2% may be necessary, with attention then moving to Federal Reserve discussions at the Jackson Hole Symposium.
The focus for the upcoming inflation report is not just on the consensus figures, but on how the forecasts are grouped. We see a strong consensus for Core CPI to be 0.3% month-over-month and 3.0% year-over-year. Any significant deviation from these numbers will likely cause the biggest market moves.
This report is especially critical given the recent shift in Federal Reserve focus. The soft July 2025 Non-Farm Payrolls report, which added only 155,000 jobs, has made the Fed more sensitive to the labor market. Because of this, futures markets are now pricing in a 70% chance of a rate cut in September.
Market Implications
Given yesterday’s unexplained dollar strength, which may have been hedging for a high inflation number, the most straightforward trades are clear. A Core Y/Y reading of 3.2% would challenge the rate cut narrative and likely cause a dollar rally. This would be a significant surprise, as only 2% of analysts expect this outcome.
We saw a similar situation unfold in late 2023, when markets became convinced of early and deep rate cuts. A series of stubbornly high core inflation prints in early 2024 quickly forced a hawkish repricing. A hot print now could trigger a similar reversal of recent dovish sentiment.
Conversely, a Core Y/Y figure of 2.9% or lower would reinforce the disinflationary trend and likely cause the dollar to weaken significantly. Such a result would solidify expectations for a September cut. It could even lead markets to begin pricing in a third potential rate cut by the end of the year.
Regardless of the outcome, the market’s attention will immediately pivot afterwards. We will be watching for comments from Fed officials for any change in tone. The upcoming Jackson Hole Symposium at the end of the month will be the next major event to guide expectations.
