August CPI Expectations: An Overview

The US August Consumer Price Index (CPI) report, due Thursday (September 11) evening, is expected to show inflation remaining stubbornly high. Economists largely agree that tariff costs will continue to permeate throughout the economy.

According to the latest consensus estimates, economists predict the August CPI to rise 0.3% month-over-month and 2.9% year-over-year, marking the highest level since January, further deviating from the Federal Reserve's 2% target and 0.2 percentage points higher than July. Excluding volatile food and energy prices, the core CPI is projected to increase by 0.3% month-over-month and 3.1% year-over-year in August, unchanged from the previous month.

The Impact of Tariffs on Inflation

Christopher Hodge, chief US economist at Société Générale, pointed out that "core CPI has risen consistently in the past two prints, and we expect this trend to continue in August. Previously accumulated inventories by companies have helped alleviate price pressures on consumers, and overall inflation data in the past few months have been relatively mild. But now that inventories have decreased, and tariff revenues have increased by more than 150% compared to the previous fiscal year, companies are finding it difficult to bear these costs indefinitely."

He added that the phased implementation of tariffs helps avoid sharp price spikes in any one month, so he expects this CPI data to show "rising but not alarming" trends.

Goldman Sachs and Bank of America both agree on the price pressures brought by tariffs.

Goldman Sachs' Forecast

Goldman Sachs economists predict that the August core CPI will rise 0.36% month-over-month, slightly higher than the market expectation of 0.30%, thereby pushing the core CPI year-over-year to 3.13%. Overall CPI is expected to rise 0.37% month-over-month, with food prices expected to increase by 0.35% and energy prices by 0.60%. Goldman Sachs also pointed out that new and used car prices, as well as airfare prices, may be the main drivers of core inflation.

Speaking about the tariffs imposed by the Trump administration on imported goods, Goldman Sachs economists said, "We have included the upward pressure on specific affected categories such as communication equipment, household goods, and recreational goods in our expectations."

They expect tariffs to continue to push monthly inflation levels higher in the coming months, and the core CPI is expected to remain around 0.3%. Excluding the impact of tariffs, the underlying trend of inflation may continue to decline due to the diminishing effects of housing rentals and the labor market.

Bank of America's Forecast

Bank of America economists expect "inflation to remain stubborn in August." They predict CPI to rise 0.3% month-over-month, due to rising energy prices, stable tariff-driven commodity inflation, and resilient non-housing service prices.

Bank of America pointed out that the impact of tariffs is "still gradually being passed on to consumers," pushing prices to continue rising for household goods, clothing, and recreational goods, "and tariffs are expected to continue to be a source of commodity inflation in the coming quarters."

Inflation Peak Expectations

Russell Price, chief economist at Ameriprise, expects the month-over-month increase in CPI to reach 0.4%, higher than the market consensus, "We believe that tariff costs are gradually being passed on, coupled with further increases in food prices."

Price said that common food prices such as beef have "skyrocketed to new highs," and although residential costs have eased, the overall price level will be pushed higher as a result.

However, Ameriprise's Price believes that the impact of tariffs on CPI is "temporary," and expects inflation to peak between November and December, at which point the impact of tariffs will reach its limit. He believes that the peak of CPI inflation should be between 3.2% and 3.4%.

The Psychological Impact of Tariffs

Katie Klingensmith, chief investment strategist at Edelman Financial Engines, pointed out that the impact of tariffs is not limited to official data. She mentioned that the August University of Michigan survey showed that American households expect inflation to rise by 4.8% in the next year, far higher than the market forecast of 2.6%.

Klingensmith added, "Tariffs usually push CPI higher in the short term when companies pass on costs, but the greater risk is actually on the psychological side."

Klingensmith added that the prolonged nature of tariff policies brings "a gradual increase in costs and supply chain disruptions rather than a one-time shock," causing households to feel that prices are constantly rising.

Other Inflation Forecasts

José Torres, senior economist at Interactive Brokers, expects the August CPI to rise 0.1% month-over-month and 2.8% year-over-year, lower than market expectations.

He pointed out that "some categories that saw significant increases last month will begin to cool, especially new and used cars." At the same time, Torres believes that the energy and transportation sectors will be a "hot zone" for inflation in August.

He also mentioned that the recent main driver of rising inflation is the service sector rather than commodity prices, which is the part directly affected by tariffs.

Torres said, "The inflationary pressures we are seeing are actually driven by the service sector, which is not what most people expect. I think this trend will continue, which to some extent reflects the recovery of consumers after a period of uncertainty in the first half of the year."

The Impact of Inflation on the Federal Reserve's Decisions

Klingensmith of Edelman said that if the CPI data is higher than expected, it will further confirm that inflation has deviated from the Federal Reserve's 2% target.

She added, "This indicates that the trend of falling inflation that has dominated the market in the past year is losing momentum, and the pace of price growth may accelerate in the future."

This may put the Federal Reserve in a more complicated situation, making it difficult for it to "focus only on weak employment data" and may also lead to stagnant real income.

Despite recent weak employment data, according to the CME FedWatch tool, the market currently expects an 88% chance of a 25 basis point rate cut in September and a 72% chance of another cut in October.

Klingensmith believes that a rate cut this month is almost inevitable. She pointed out that "At present, the Federal Reserve has made it clear that it is focusing on the downside risks in the labor market, and a 25 basis point rate cut in September is almost a foregone conclusion." But the real question is how many other cuts will happen after that, and what the pace will be.

Ameriprise's Price expects one rate cut in September, but does not believe there will be another cut in October. "Because inflation is still accelerating, it will be a difficult decision at that time."

Price added, "But by 2026, they can make compensatory cuts, and inflation is expected to fall in the first half of the year. By then, the Federal Reserve will have plenty of room to cut interest rates."

James Knightley, chief international economist at ING, said, "Overall, the economic situation is still hotter than the Federal Reserve would like to see. They will look at the bigger picture. The US economy is mainly based on services."

Knightley said, "When you combine all these factors together, concerns about prices, concerns about income, concerns about wealth, these three factors combined will have a significant negative impact on the outlook for economic growth. This is starting to make the Federal Reserve more cautious about moving forward."