Tomorrow will be the first US CPI data release that will contain the impact of the July crude oil price rise and the new calculation method of the insurance element. Though most of the investor and economist community is expecting a rise that will not result in a rate hike during the September Fed meeting. It is important to watch what elements drive this particular rise.
During August fuel prices have already risen by 6% compared to July. Along with this, there has been some reversal in food prices as well. But as the previous data release showed there was some relief from rent inflation. The element of surprise was the motor insurance and vehicle prices.
As of today, the Fed swap market estimates that there is only a 7% and 40% chance of a rate hike in September and November meetings respectively. Any data above the estimates with a strong surprise would result in a rise in these chances and volatility to spike as well.
In the latest New York Fed survey households have witnessed tighter financial conditions and expect higher inflation ahead. This would be an additional worry for the Federal Reserve as the soft landing path comes to a critical phase of divergences.