Underlying inflation in the United States is projected to remain under control through August, according to economists Oscar Munoz, Eli Nir, Gennadiy Goldberg, and Molly Brooks at TD Securities. They anticipate that the Core CPI will advance by 0.19% on a month-over-month basis. The services sector is expected to act as the primary engine driving consumer price gains, whereas core goods prices likely functioned as a drag, posting a modest monthly decline.
Projections for Core and Headline CPI
The economists project that the Core CPI rose 2.3% on an annualized basis, which marks a decrease of 10 basis points compared to July. Meanwhile, headline inflation is expected to have remained unchanged at 3.4% year-over-year. They caution that risks to their forecasts remain tilted to the upside because their models assume significant price drops across tariff-exposed goods categories.
Trends in Goods and Services Segments
After registering a 0.20% increase in the previous report, goods prices are expected to resume their downward trajectory in August. The core goods segment excluding vehicles, which is closely tied to tariff impacts, likely reversed its solid July gain with a 0.15% monthly decline, driven largely by lower prices for household goods and apparel. Conversely, persistent strength in new vehicle prices likely contributed to inflationary pressures for the second consecutive month.
The services sector is anticipated to gain further momentum in August with a 0.26% monthly increase, fueled by firmer shelter inflation alongside advances in vehicle maintenance, healthcare, and recreation services. Additionally, airfares are projected to climb 3.2% month-over-month, marking a full percentage point acceleration from July's reading.
Looking further ahead, the core segment is expected to continue evolving favorably through October after peaking in May at 2.9% year-over-year. Headline inflation likely saw its annual peak at 4.2% in May, though its future path will remain entirely contingent on the ultimate resolution of the Middle East conflict. Both series are expected to regain year-over-year momentum during the fourth quarter.
Broader Currency and Commodity Market Movements
In the currency markets, the AUD/USD pair held above 0.7200 during the Tuesday Asian session, hovering near its highest level since May 14. The US Dollar remains under pressure as a strengthening Japanese Yen outweighs support stemming from hawkish Federal Reserve expectations and ongoing geopolitical tensions. This dynamic, paired with firming expectations for another rate hike by the Reserve Bank of Australia later in the month, acts as a tailwind for the Australian Dollar, though mixed trade balance data out of China has kept the currency pair somewhat restricted.
Meanwhile, the USD/JPY pair hovered around 154.00 during the Tuesday American session after staging a rebound from a six-month low touched below the 153.00 threshold earlier in the day. Upward attempts currently resemble technical corrections as upbeat wage growth figures and second-quarter GDP revisions from Japan cement market bets regarding a Bank of Japan rate hike next week, thereby continuing to support the Japanese Yen. In the energy sector, while the broader oil market appears calmer than it did months ago, diesel is signaling a different trend as the US diesel crack spread surged above $100 per barrel for the first time, reaching an intraday record high of just over $102.00.
