Data Preview & Forecast
MUFG forecasts August 2026 headline CPI at 0.32% MoM (3.3% YoY) and core CPI at 0.23% MoM (2.4% YoY), in line with the median estimate from Bloomberg contributors.
There is an implied probability of ~50% for core CPI to grow by 0.2% MoM in August, ~30% for 0.3% MoM, and ~20% for 0.1% MoM.
What to watch out for: Core goods inflation returned to positive territory in July, with some of that momentum likely to carry forward into August, though deflation of used auto prices will limit the monthly contribution from goods. For services, growth in college tuition should moderate (following strong growth last month which contributed ~0.01% points to overall CPI), but airline fares inflation is expected to remain elevated amid high oil prices.
Market Thoughts
Base-case: Given the rates sell-off ahead of CPI, it will all depend on the composition of inflation and rounding (within the 0.15-0.24 range). With a middle of road 0.2%, we expect a decent rates rally (4 6bps) as we believe the pre-CPI rate selloff is largely driven by non-US fundamentals (the ECB hike and oil moves of late).
Upside risk: A core reading of 0.3% would keep rates under pressure and push hiking expectations for the Sep FOMC meeting up towards 90%, as it will be hard for the Fed to skip in this scenario. However, the composition of growth will still be relevant.
Downside risk: A 0.1% MoM core reading would ease market expectations of a Fed hike in Sep down closer to a coin-flip, but we expect the Fed to hold in this scenario. We expect a decent rates rally of 7-11 bps (unwinding recent moves) if core CPI comes in this soft.
Download the PDF to view the complete forecast with market implications