Insights 
VT 
UBS forecasts that inflation pressures will affect the US economy during autumn. They predict core CPI to rise by 0.35% m/m and 3.11% y/y in July. These estimates are the highest among analysts, with trends expected to strengthen until autumn.
Tariffs And Core Inflation
The impact of tariffs is anticipated, with core goods inflation projected at 0.38% m/m following a 0.20% m/m increase in June. UBS expects figures to rise further in the coming months: 0.60% in August, 0.76% in September, and 0.73% in October.
Core services inflation is also expected to climb to 0.35% m/m in July, up from 0.25% m/m in June. Price rebounds are forecasted for airfares and lodging away from home. Previously, airfares decreased by 0.11%, and lodging dropped by 2.89% in June. UBS projects a 1.0% monthly increase in airfares and a 0.90% increase in lodging prices away from home.
Looking back to mid-2024, we remember the calls for a significant inflation pickup heading into autumn. Forecasts at the time pointed to an acceleration in both core goods and services, driven by tariffs and a rebound in travel prices. This set the stage for a nervous market during the second half of that year.
Those predictions largely came true, as we saw core inflation remain stubbornly high through the end of 2024. Official data from that period shows Core CPI for October 2024 indeed posted a challenging 0.5% month-over-month increase, delaying any pivot from the Federal Reserve. This period taught us that underlying price pressures can resurface quickly.
Interest Rate Futures And Market Volatility
That historical inflation spike forced the Fed to hold interest rates firm well into 2025, disappointing those positioned for early rate cuts. We saw significant volatility in interest rate futures as the market repriced a more hawkish reality. That memory should inform how we approach the market today.
Now, in mid-August 2025, we are seeing a similar dynamic. The July CPI report released last week showed year-over-year inflation ticking up to 3.4%, while the latest jobs report showed a robust 210,000 positions added. The Fed’s path at its upcoming September meeting is once again uncertain.
Derivative traders should therefore consider buying protection against unexpected inflation news or a hawkish Fed. The VIX is currently hovering near a relatively calm 15, which could make buying call options on it an inexpensive way to hedge against a sudden spike in market fear. We saw the VIX jump to over 20 during the inflation surprise last autumn.
Positions in interest rate futures should be reviewed, as the market may be too complacent about the possibility of rates staying higher for longer. Traders could use SOFR futures to bet against the market’s current pricing of rate cuts in early 2026. This strategy would profit if the Fed is forced to maintain its restrictive stance due to persistent price pressures.
We should also revisit the specific themes from last year, like services inflation. With summer travel demand in 2025 exceeding expectations, prices for airfares and hotels are climbing once more. Call options on airline (JETS) or consumer discretionary (XLY) ETFs could be a way to trade this specific, ongoing inflationary pressure.
