Market participants are watching closely ahead of the U.S. consumer price index (CPI) announcement, a key inflation indicator. The recent revival of risk appetite in assets is driven by expectations that the Federal Reserve will cut rates, and if inflation shows a stable trend, a relief rally is expected to continue. Conversely, if inflation concerns resurface, potential adjustments must be considered.
According to the financial investment industry on the 12th, the U.S. Department of Labor will announce the July CPI at 9:30 p.m. Korean time. The CPI shows the changes in prices that urban consumers in the U.S. pay for goods and services. In simple terms, an increase in the CPI indicates rising prices, while a decrease implies falling prices.
Global investment banks estimate that the July CPI rose by 2.7% to 2.8% compared to the previous year. Forecasts from Bank of America (BoA), Citigroup, Goldman Sachs, and JPMorgan suggest a 2.8% increase, while Barclays, Nomura, and Wells Fargo predict a 2.7% rise. Considering that the June CPI had been recorded as up 2.7% year-over-year, it is believed that prices have either risen slightly more or remained at a similar level.
What the market is paying more attention to is the core CPI. The core CPI is calculated excluding the volatile components of food and energy prices, with global IBs estimating it to range from 3.0% to 3.1%. It is anticipated that the increase has surpassed the June core CPI increase rate of 2.9%, entering the 3% range.
Park Seung-jin, a researcher at Hana Securities, noted, "Global IBs anticipate that the July CPI will see a reduced increase from the previous month due to falling energy prices, but the core CPI is expected to have increased during the same period."
If the July CPI and core CPI fall short of market expectations, tariff concerns may lessen, reviving expectations for a Fed rate cut and leading to a rising trend in the stock market. Earlier, when the June core CPI fell 0.1 percentage points below market expectations, indices such as the Nasdaq and the Standard & Poor's 500 experienced upward momentum.
The concern is the opposite scenario. Even if the July CPI and core CPI meet expectations, they are all at their highest levels since February. The tariff policy under the Donald Trump administration can be interpreted as affecting prices. Price increases have already been observed for household and leisure goods. If the July CPI and core CPI exceed market expectations, inflation concerns may be triggered, leading to a significant possibility of adjustments in the stock market.
The market is sensitive to the CPI for reasons intertwined with expectations for rate cuts. Recently, due to poor employment indicators, the market expects the Fed to lower the benchmark interest rate at the upcoming Federal Open Market Committee (FOMC) meeting in September. According to the Chicago Mercantile Exchange (CME) FedWatch Tool, participants in the U.S. federal funds rate (FF) futures market are reflecting an 84.4% probability of a rate cut at the September FOMC meeting. In this context, if inflation concerns arise, it will become increasingly difficult for the Fed to cut rates, leading to significant disappointment.
The significance of the July CPI results is heightened by the fact that it comes before the Jackson Hole meeting, which will take place from the 21st to the 23rd. The Jackson Hole meeting is a gathering of central bank officials and senior figures from around the world to discuss policy issues. In the past, Jerome Powell, the chair of the Fed, has revealed the direction of monetary policy during his speeches at the Jackson Hole meeting.
However, there is also analysis suggesting that the desire to confirm data up until the August CPI will be strong, regardless of the July CPI results. The August CPI is expected to be released just before the FOMC meeting starting on September 17. Notably, only the tariffs imposed by the Trump administration of approximately 10% will be reflected in the July CPI, but from the August CPI onward, tariffs by country will also have an impact.
Currently, according to the inflation model of the Cleveland Federal Reserve Bank, the year-over-year increase rates for the August CPI and core CPI are projected to be 2.86% and 3.0%, respectively. This is at a similar level to the July CPI forecast.
Han Ji-young, a researcher at Kiwoom Securities, said, "While it is true that this July CPI is an event capturing market attention, there will likely be relatively high demand from the market to verify the August CPI data as well. I believe that unless the July CPI records a 'shock' exceeding market expectations by 0.1 percentage points, it will only influence daily volatility without having a significant impact on directionality."