Ahead of US CPI Release, Expected Inflation Slows to 5% Range

[Asia Economy New York=Special Correspondent Joselgina] On the eve of the release of the U.S. Consumer Price Index (CPI) for August, American consumers' inflation expectations for the next year have significantly eased. However, the central bank, the Federal Reserve (Fed), is expected to continue its aggressive tightening stance.

The Federal Reserve Bank of New York announced on the 12th (local time) that the expected inflation rate for the next year, according to its August consumer outlook survey, was 5.7%. This is a much lower level than the previous month's 6.2%, marking the lowest point since October 2021. The expected inflation outlook for the next three years also fell from 3.2% last month to 2.8%. The New York Fed evaluated that "compared to a year ago, households' perception of their current financial situation has improved."

By item, the outlook reflects expectations that gasoline and housing prices, which have fueled inflation in recent months, will not rise significantly next year. According to the American Automobile Association (AAA), the average gasoline price in the U.S., which exceeded $5 per gallon until June, has recently been around $3.7. Along with this, the expected inflation for housing prices dropped to the lowest level since July 2020. It is assessed that the Fed's tightening has caused mortgage rates to soar, suppressing potential housing demand.

In particular, this trend of easing inflation expectations draws more attention as it comes ahead of the August CPI release on the 13th. This is because for the Fed's targeted stabilization, it is essential that consumers' inflation expectations ease. The market expects that the August CPI, to be released the next day, will show an 8.0% increase compared to the same month last year. This is a noticeably lower level than the previous month's 8.5%. The month-over-month CPI is expected to decline by 0.1%.

However, even if inflation indicators slow down, there are views that the Fed's rate hike this month will still be substantial. The Fed started with a 0.25 percentage point increase in March, followed by a 0.5 percentage point hike in May, and 0.75 percentage point hikes in June and July. The possibility of a 0.75 percentage point increase this month remains open.

According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on this day reflects a 92% probability of a 0.75 percentage point rate hike in September. This is a much higher level than the 57% a week ago. Recent hawkish remarks from Fed officials expressing concerns about entrenched high inflation are interpreted as still favoring a third consecutive giant step (0.75 percentage point rate hike). The possibility of a 0.5 percentage point increase has dropped from 43% to 8%.

This content was produced with the assistance of AI translation services.