U.S. CPI Preview: Bullish Outlook for U.S. Stocks Continues
TradingKey - On 12 August 2025, the U.S. will release its July CPI data. Market consensus forecasts a year-over-year headline CPI increase of 2.8% and a core CPI rise of 3%, both up 0.1 percentage points from June. We align with these widely held market expectations. Breaking it down by category: rising supply chain costs are expected to drive food prices higher; falling U.S. retail gasoline prices, combined with persistently low international oil prices, may lead to a decline in energy goods prices; rising used car prices are likely to support the CPI for transportation goods; and Zillow’s rent index data points to ongoing housing inflation pressures. Overall, the likelihood of higher U.S. inflation in July is significant.
Moving forward, a weakening U.S. labour market could slow economic expansion. Despite signs of inflation picking up recently, reduced economic growth should limit demand-driven inflation increases. As a result, we anticipate inflation will steadily decrease in the coming months. In this context of subdued growth and falling inflation, the Federal Reserve is likely to restart rate cuts in September. For equities, supportive monetary policy alongside tax cuts from the “One Big Beautiful Bill Act” should outpace the adverse effects of economic softness. Thus, we remain bullish on the U.S. stock market outlook for the next 12 months.
Source: Mitrade
Main Body
On 12 August 2025, the U.S. will release its July CPI data. Market consensus projects a year-over-year headline CPI increase of 2.8% and a core CPI rise of 3%, both up by 0.1 percentage points from June (Figure 1). We concur with these broadly shared market expectations.
Figure 1: Consensus Forecasts
Source: Refinitiv, TradingKey
The breakdown analysis of the CPI is as follows:
Taken together, these category dynamics suggest a high likelihood of elevated U.S. inflation in July. If this expectation holds, it would mark the third consecutive month of rising U.S. CPI since its low in April (Figure 2).
Figure 2: U.S. CPI (%, y-o-y)
Source: Refinitiv, TradingKey
Moving ahead, the softening U.S. labour market (Figure 3) could create uncertainty for the economic landscape. Market consensus projections indicate U.S. real GDP growth will drop to 1.3% year-over-year in Q3 and 1% in Q4 of 2025, reflecting significantly stronger economic headwinds in the latter half of the year. Despite recent signs of resurgent inflation, slower economic expansion is likely to curb demand-driven inflation pressures. As a result, we expect inflation to steadily decrease in the months ahead.
Figure 3: U.S. Nonfarm Payrolls (000)
Source: Refinitiv, TradingKey
With low economic growth and easing inflation, the Federal Reserve is likely to restart interest rate reductions in September (Figure 4). On the fiscal side, the “One Big Beautiful Act”—especially its tax cut measures—is expected to bolster U.S. equities in the near to medium term. Together, the combined impact of lower rates and tax relief should outpace the adverse effects of a sluggish economy. As a result, we remain bullish on the U.S. stock market’s performance over the next 12 months.
Figure 4: Fed Policy Rate (%)
Source: Refinitiv, TradingKey
