Inside Markets — CPI Preview

Core CPI will be the focus for Thursday’s print, where we look for a +0.3% MoM increase, which equates to a 3.1% on a YoY basis. While inflation does remain elevated, there has yet to be an inflation shock (core or headline print of +0.5% MoM) that would significantly bother markets. Like last week’s NFP payrolls preview, we see outcomes positively skewed given that a 25bp cut is fully priced in and upside potential from a materially dovish print that increases the odds of a 50bp cut.

Tariff adjustments will likely keep observable inflation (headline CPI inflation) at a 0.3% MoM pace for the next 2-3 months.  Outside of tariff effects, we expect underlying trend inflation to fall further, reflecting disinflation in housing rental and labor markets.  An inflation-targeting central bank will typically look through a tariff-related price shock, especially at a time when the employment side of the mandate calls for a more neutral setting.  Weaker labor market data has markets priced for a 25bp cut in September and 25bp cuts at the two remaining meetings in ’25 (October 29 and December 10) followed by two more quarterly cuts that leave the funds rate at 3.0-3.25% in June 2026.