Goldman Sachs anticipates a rise in U.S. inflation for August, with core CPI expected to increase by 0.36% month-on-month, slightly exceeding the consensus of 0.30%. This increase would elevate the annual core CPI rate to 3.13%.
Headline CPI is projected to grow by 0.37% month-on-month, driven by increases in food costs (+0.35%) and energy expenses (+0.60%). Prices for cars and airfare are also likely to contribute to heightened inflation.
Tariffs Exacerbate Inflation
The bank indicated that tariffs are exacerbating inflation, particularly in sectors such as communications, furnishings, and recreation. These levies, originating from policies under President Donald Trump, are predicted to maintain monthly core CPI at approximately 0.3% for the immediate future.
However, beyond the influence of tariffs, economists anticipate a cooling of underlying trend inflation. This is attributed to easing pressures in housing and labour sectors. The data release is scheduled for Thursday, September 11, 2025, at 0830 US Eastern time, or 1230 GMT.
With the August inflation report due tomorrow morning, we are positioning for a number that could surprise the market. The forecast for a 0.36% rise in core prices is above the general consensus, suggesting that current market pricing may be too complacent. This points toward trades that would benefit from a hawkish repricing of Federal Reserve policy in the immediate aftermath of the release.
Specifically, we are looking at options on short-term interest rate futures, which are currently not pricing in a high probability of another rate hike. For context, CME FedWatch data shows the market is only implying a 15% chance of a rate hike before the end of 2025. A hot CPI print tomorrow could easily double or triple those odds, causing a sharp drop in Fed Funds and SOFR futures prices.
Impact on Market Volatility
This kind of surprise would also likely trigger a spike in market volatility from its currently subdued levels. We have seen the VIX index, a measure of expected market volatility, jump by over 20% on days with significant inflation surprises, as we saw multiple times back in 2022. Buying VIX call options or front-month futures provides a direct way to profit from the uncertainty that a higher-than-expected inflation reading would create.
However, we must consider that the underlying inflationary trend is expected to cool once the effect of tariffs passes. This suggests any sharp market reaction tomorrow could be an overreaction, creating an opportunity for a fade. If short-term yields spike significantly, we might look to enter positions that bet on them coming back down in the following weeks as the market digests that the core issue is temporary.
The report’s emphasis on tariffs impacting specific goods like furnishings and recreation offers a more targeted trading idea. This allows us to use equity options to bet against sectors that are most sensitive to these price increases and the resulting drop in consumer demand. Looking at how consumer discretionary stocks reacted to the tariff announcements in the first half of 2025 gives us a playbook for which names are most vulnerable.
