PREVIEW: US CPI due Wednesday 12th August, 2026 at 13:30BST/08:30EDT

EXPECTATIONS: Headline CPI is expected to rise 0.1% M/M in July, rebounding from the -0.4% decline in June, while the annual rate is expected to ease to 3.4% Y/Y from 3.5%. Core CPI is expected to rise 0.2% M/M (prev. 0.0%), with the annual rate of core inflation seen cooling to 2.5% Y/Y from 2.6%.

PANTHEON MACROECONOMICS: Pantheon argues that the report should be enough to keep the FOMC in wait-and-see mode. The consultancy expects core goods prices to rise 0.18% M/M, which would be the largest increase since September, partly driven by Apple's (AAPL) decision to raise prices across most of its hardware range by 15-30% from June 25th. However, this is expected to be partly offset by softer services components, with airfares seen falling 1.5%, accommodation prices declining 1.0%, and auto insurance premiums expected to continue their recent downward trend. Pantheon also looks for CPI energy goods prices to fall 2.6% M/M in July, subtracting around 11bps from the headline monthly rate, while food-at-home prices are expected to rise a modest 0.2%.

FED IMPLICATIONS: The report will be key in shaping expectations for the September FOMC meeting and updated dot plot. The weak July NFP report prompted participants to pare rate hike expectations, although the subsequent rebound in crude prices has helped push September pricing back towards a coin toss. CPI will therefore provide an important test of whether softer labour market data is enough to keep the Fed sidelined or whether persistent inflation pressures maintain the case for further tightening.

However, July CPI will not be the final major data point before the 16th September FOMC decision. Following this week's inflation reports, policymakers will still receive the August jobs report, August CPI and August PPI before the meeting, while August PCE will not be released until after the FOMC. The September decision therefore remains highly data-dependent, with plenty of scope for expectations to shift between now and the meeting.

The data arguably carries even greater importance given the Fed's continued reluctance to provide explicit forward guidance, leaving markets increasingly focused on incoming releases to gauge the Committee's reaction function. Recent Fed commentary has leaned hawkish, particularly following the July dissents from Kashkari, Hammack and Logan, while non-voters Schmid and Musalem have also said they would have preferred a hike at the meeting. A common argument among the hawks has been that gradual tightening now may reduce the risk of more aggressive action being required later. Conversely, Chair Warsh's acknowledgement that tighter financial conditions are doing some of the Fed's work, alongside the weak July payrolls report and sizeable downward revisions, tempered expectations for near-term tightening.

Overall, a hotter-than-expected core CPI print would likely revive expectations for a September hike, particularly given the recent hawkish Fed commentary and renewed rise in energy prices. Conversely, another soft core reading would strengthen the case for patience following the deterioration in payrolls and could see markets more decisively price out a September move.

A CPI print arriving with the next meeting priced near a coin toss is the setup that has historically produced the largest single-print repricings at the front end, since the distribution of outcomes is genuinely two-sided and positioning is not committed in either direction. The structure of the preview matters: headline and core diverging via energy subtracting from the monthly rate while core goods firms on one-off retail price increases is a familiar composition problem, and the reaction function question is whether the Committee treats tariff-style goods pass-through as a level shift to look through or as evidence of persistence. The asymmetry worth noting is that hawkish dissents and would-have-preferred-a-hike commentary from non-voters lower the bar for a hot print to shift pricing, whereas a soft print must compete with the fact that several further releases land before the decision, capping how much any single report can close the issue. When the central bank withholds explicit guidance, each major release tends to carry outsized weight sequentially, and the resulting pattern has been choppy repricing between prints rather than a smooth drift. The tells are whether the surprise comes through services components, which officials have historically treated as the stickier signal, or through goods, where one-off price resets are more easily dismissed. Attention then passes to the subsequent labour and inflation releases before the meeting rather than to the print alone.