U.S. August CPI Preview: Persistent Rise in Inflation, What Impact on Rate Cuts? And on US Stocks?

TradingKey - On 11 September 2025, the U.S. will publish August CPI data. Consensus forecasts indicate a 0.3% month-over-month increase for both headline CPI and core CPI. As a result, headline CPI year-over-year may climb to 2.9%, up from 2.7%; core CPI year-over-year is projected to hold at 3.1%. Leading indicators suggest that, aside from the housing component, food, energy, transportation, and other core services are expected to trend higher.

Although U.S. inflation exhibits stickiness, it remains broadly under control. August's nonfarm payrolls data recorded only 22,000 jobs added—significantly below market expectations—while June's data have been revised to a negative figure. In this context, the Fed is expected to place greater emphasis on the softening labour market, highly likely restarting the easing cycle in September. We forecast that the central bank will implement three rate cuts this year, each by 25 basis points.

In the stock market arena, despite ongoing U.S. economic softening, the dual policy thrust of interest rate cuts and tax reductions is expected to provide robust positive support that outweighs the adverse effects of economic slowdown. Accordingly, we maintain a bullish outlook on U.S. stocks over the next 12 months.

Source: Mitrade

Main Body

On 11 September 2025, the U.S. will release August Consumer Price Index (CPI) data. Market consensus anticipates a 0.3% month-over-month rise for both headline CPI and core CPI. This could drive headline CPI year-over-year to 2.9%, up from the prior 2.7%; core CPI year-over-year is expected to hold at 3.1% (Figure 1). If figures align with expectations, U.S. inflation will have risen for four straight months from April's interim low (Figure 2).

Figure 1: Market Consensus Forecasts

Source: Refinitiv, TradingKey

Figure 2: U.S. CPI (%, y-o-y)

Source: Refinitiv, TradingKey

Breakdown by category:

· The leading indicator for the food subcomponent is the CRB Food Index. Given its upward trajectory in August, the food subcomponent's growth is expected to accelerate, providing a positive lift to overall CPI momentum.

· The leading indicator for the energy goods subcomponent is U.S. retail gasoline prices. With the year-over-year decline in average U.S. retail gasoline prices narrowing significantly in August, the energy goods subcomponent's growth is projected to rise.

· The assessment for the transportation subcomponent relies on observations of the Manheim Used Vehicle Value Index. With this leading indicator showing a year-over-year increase in August, the transportation products subcomponent in this month's CPI is expected to exhibit accelerated growth.

· Regarding housing inflation, both the S&P CoreLogic Case-Shiller Home Price Index and the Zillow Rent Index are exhibiting a downward trend, suggesting that August housing inflation growth may decelerate further.

· Finally, the growth in average hourly earnings for August remains elevated, signalling an upward trajectory for the core services subcomponent in that month.

Taking into account the food, energy, transportation, housing, and other core services subcomponents, August headline inflation is likely to trend higher. Notably, the tariffs imposed by Trump on the EU, Japan, South Korea, India, and other economies took effect in August. If these tariffs exert a material impact, August CPI could exceed market expectations.

In summary, our baseline projection is that U.S. inflation remains sticky but broadly manageable. Although July's nonfarm payrolls saw a slight upward revision, August's figure added just 22,000 jobs—well below market expectations—and June's data has been downgraded to negative territory (Figure 3). Against this backdrop, the Federal Reserve is likely to prioritise the softening labour market, resuming its rate-cutting cycle in September. We anticipate three 25-basis-point cuts by the central bank this year (Figure 4).

In the equity markets, although the U.S. economy continues to weaken, the combined impetus of interest rate reductions and tax cuts is anticipated to deliver strong positive support that overrides the downside risks from economic deceleration. As such, we retain a bullish stance on U.S. stocks for the next 12 months.

Figure 3: U.S. Nonfarm Payrolls (000)

Source: Refinitiv, TradingKey

Figure 4: Fed Policy Rate (%)

Source: Refinitiv, TradingKey