Aug 2024 CPI Estimate
Wednesday at 8:30 am ET we will get the long-awaited Aug CPI. This month’s CPI will be an important piece of the puzzle for determining by how much the Fed might cut rates in Sep and beyond.
So far in 2024 CPI figures have been all over the place. In Q1 headline CPI was hotter than expected, but in Q2 it was quite cool, primarily due to May and Jun. Although hotter headline CPI in Q1 this year came after quite tame reads in Q4 2023, Q2 2024 actually ended up being -0.1 pp below cool Q4 2023 MoM figures. In the last 3 reported months May - Jul 2024 headline CPI was below 2% annualized. If Aug CPI would again come at 2% annualized or better, that we would be 4 months in a row of such numbers which last happened in May 2020.
On average, core CPI in Q2 2024 was also -0.1 pp below Q4 2023 MoM figures. In the last 3 reported months May - Jul 2024 core CPI was at 2% annualized or lower. If Aug CPI would again come at 2% annualized or better, that we would be 4 months in a row of such numbers which last happened in Jun 2020.
My average error for estimating headline CPI (based on last 18 CPI estimates from Feb 2023 - Jul 2024) remained at almost perfect -1 bps (-0.01 pp).
My average error for estimating core CPI (based on last 18 core CPI estimates from Feb 2023 - Jul 2024) remained at extremely low -2 bps (-0.02 pp).
For public links to my prior month CPI estimates go to ArkominaResearch.com.
The market is currently expecting a 25-bps cut in Sep. A hotter Aug CPI print could possibly make the Fed guide for less cuts going forward. On the other hand, a cooler print could make the Fed go 50 bps than-25-bps cut in Sep so everyone is impatient to learn what happened with CPI in Aug.
If headline and core CPI again print at 2% annualized or lower, this might, in Fed’s eyes, mean that inflation is not a problem anymore. Can we get another 2% annualized or cooler number? How plausible is that?
My Aug CPI estimates are…
Headline CPI
+0.1% MoM (-0.1 pp lower than both consensus and the Cleveland Fed)
+2.5% YoY (-0.1 pp lower than both consensus and the Cleveland Fed)
Core CPI
+0.2% MoM (same as consensus and -0.1 pp lower than the Cleveland Fed)
+3.1% YoY (-0.1 pp lower than both consensus and the Cleveland Fed)
My unrounded estimates:
If CPI comes as I expect, this may still not settle the 25 vs 50 cut debate, but it could support a case for the Fed to guide for more cuts going forward. Whether they end up going 25 bps or 50 bps next week, might in the end depend on Aug retail sales data which we will get Tue Sep 17, the first day of the Fed Sep meeting.
If you’re interested in learning my longer-term CPI estimates (until mid-2025), consider subscribing to Marko’s CPI Report which goes out each month before CPI and, among other things, contains analyses of:
Forward looking inflation indicators
Detailed Aug CPI estimate
Headline and core CPI trajectory until the end of Q2 2025
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