Insights 
VT 
Bank of America forecasts that US inflation will persist in August, with both headline and core Consumer Price Index (CPI) expected to increase by 0.3% month-on-month. This rise is driven by increased energy prices, inflation in tariff-affected goods, and robust non-housing services.
The bank anticipates the year-on-year headline CPI to increase to 2.9% from 2.7%, which would be the highest level since July of the previous year. This consistent inflation poses a limitation on the Federal Reserve’s ability to impose substantial rate cuts.
Tariff Effects
Tariff effects continue to impact consumers, with noticeable price increases in household furnishings, apparel, and recreation goods. Bank of America warns that tariffs could persist as a source of goods price inflation in the coming quarters, potentially straining consumers already dealing with limited budgets.
The data for US CPI is scheduled for release on Thursday, September 11, 2025, at 0830 US Eastern time, 1230 GMT.
With the US inflation report due today, we are bracing for another sticky number, expecting a 0.3% monthly increase for August. This expected rise to 2.9% year-over-year is being driven by firm energy costs and the persistent impact of tariffs on goods. This outlook suggests the Federal Reserve will have little room to consider deep interest rate cuts in the near future.
Market Impact
Given the market’s anticipation, any deviation from this 0.3% forecast will likely trigger significant volatility. Traders should consider strategies that benefit from a potential price swing, such as straddles on S&P 500 options, especially since implied volatility has been creeping up ahead of the announcement. If the number comes in hotter than expected, it could confirm fears that inflation is re-accelerating.
The interest rate futures market is already reflecting this caution, with Fed funds futures pricing in less than a 25% chance of a rate cut at the next Fed meeting. This indicates that positions betting on lower rates are risky right now. We see this as an opportunity to watch options on Treasury note futures, which could see increased activity as the market reprices the path of monetary policy over the coming weeks.
This inflationary pressure is supported by a still-strong labor market, which is keeping services inflation elevated. Looking at the last jobs report from August 2025, wage growth was still running at a 4.0% annual pace, providing fuel for consumer spending. This data makes a swift return to the Fed’s 2% inflation target seem unlikely this year.
We remember a similar situation back in 2023, when early signs of disinflation gave way to a period of stubborn price pressures that kept the Fed on hold longer than many anticipated. History suggests that the last mile of getting inflation down is the hardest. This historical precedent means traders should be wary of assuming a straightforward path to lower rates.
The ongoing effect of tariffs on items like apparel and home furnishings adds a structural headwind that will not fade quickly. This slow-moving inflationary force is squeezing household budgets and is a factor we expect to persist for several more quarters. This theme supports trades that anticipate continued firmness in the prices of consumer goods.
