In August 2025, US import prices increased by 0.3%, compared to an expected decrease of 0.1%. The previous month’s figures were revised from a 0.4% increase to a 0.2% increase.
Export prices for the same month rose by 0.3%, against an expectation of no change. The prior export prices were adjusted from a 0.1% increase to a 0.3% rise.
Year-on-Year Price Changes
Year-on-year, import prices remained unchanged against a prior drop of 0.2%. Export prices saw a 3.4% rise, an increase from the previous 2.2% rise.
The increase in nonfuel import prices outweighed the reduction in fuel import prices, affecting the overall import price index for the month.
The unexpected rise in import prices, driven by nonfuel goods, suggests inflation is more embedded than we thought. This challenges the narrative that price pressures were easing and puts the Federal Reserve in a difficult position. We see this as a clear signal that the central bank will need to maintain its hawkish stance through the end of the year.
Given this, we should consider buying put options on equity indices like the S&P 500 and Nasdaq 100 for the coming weeks. The market’s reaction to stubbornly high inflation during the 2022-2023 period serves as a historical guide for potential downside. With equity valuations already stretched after the summer rally, this inflation data provides a catalyst for a pullback.
Interest Rate Markets and the US Dollar
Interest rate markets are signaling a policy shift, with Fed funds futures now pricing in a 45% chance of a rate hike at the November meeting, up from just 20% last week. We believe there is value in positioning for higher yields by shorting 2-year and 10-year Treasury futures. This data makes it highly unlikely the Fed will signal any dovish pivot at its meeting next week.
The US dollar should strengthen as policy divergence with other central banks widens. With the latest HCOB Flash Germany Composite PMI Output Index coming in at a weak 44.7, the European Central Bank is likely to pause its own tightening cycle. We should look at buying call options on the U.S. Dollar Index (DXY) to capitalize on this trend.
Finally, we anticipate a rise in market volatility as this new data is digested. The CBOE Volatility Index (VIX), which has been hovering near a historically low level of 14, is poised to move higher. Buying VIX call options with October expirations could be a cost-effective way to hedge against, or profit from, increased uncertainty ahead of the next CPI report.
