What are the Expectations for CPI and How is Goldman Trading the Last Big Event before the Fed?

Over the past two weeks, we have witnessed a series of dovish developments – first, Powell’s unexpected pivot at the Jackson Hole meeting, then last Friday’s disappointing (and also dovish) jobs report, this week’s revision of core employment data showing that another 911,000 “Biden 2024 jobs” exist only in spreadsheets, and today’s deflationary PPI report. All of this has pushed the probability of a 25 basis point rate cut next week to 100% and even increased the odds of a larger 50bp cut to 15%.

Tomorrow brings the last key economic report of the week – the August CPI inflation data. It will not only solidify expectations for a 25bp cut but could potentially make a 50bp cut almost certain.

Here’s what Wall Street expects for August CPI:

• Headline CPI is expected to rise by 0.3% month-on-month, an acceleration from 0.2% the previous month. This would also push the annual CPI up from 2.7% to 2.9%.

• Core CPI is also expected to rise by 0.3% on a monthly basis, the same pace as in July. This would result in an annual core CPI of 3.1%, unchanged from the previous month.
• Expectations for core CPI are normally distributed, though slightly “skewed” to the upside around 0.3%: 13 analysts are forecasting 0.4%, 4 expect 0.2%, and 59 predict 0.3%. However, this often implies that the actual figure could surprise to the downside – for example, 0.1% or even lower.

In its preliminary analysis, Goldman expects a 0.36% increase in core CPI for August (vs. +0.3% consensus), which corresponds to a 3.13% year-over-year rise (vs. +3.1% consensus). The bank also forecasts a 0.37% increase in headline CPI (vs. +0.3% consensus), driven by higher food prices (+0.35%) and energy prices (+0.6%). This equates to a year-over-year increase of 2.90%, in line with the +2.9% consensus.

JPM also published a hotter-than-expected forecast (which, according to analysts, almost guarantees the actual result will surprise in the opposite direction). The bank expects CPI to rise by 0.4% in August (0.36% in more precise calculation) — the strongest monthly increase since December. If realized, the year-over-year rise in headline CPI would reach 2.9%, marking a seven-month high.

JPM projects that both food and energy will contribute to the CPI increase in August — food prices are estimated to have risen by 0.4%, while energy (driven by oil prices) jumped by 1.1%, offsetting a decline of the same size in July.

Goldman expects tariffs to put upward pressure on the prices of several goods, potentially adding around 0.14 percentage points to core inflation, with furniture, auto parts, clothing, and electronics likely to be most affected, while the shelter component is expected to remain nearly unchanged. The bank forecasts a monthly core CPI of around 0.3%, but emphasizes that in the coming months tariffs will keep inflation elevated, even though the underlying trend remains downward. JPM believes the result will tilt the balance toward a more favorable market reaction, as Powell’s Jackson Hole speech has already cemented a 25 bp rate cut in September, and a weaker inflation report could open the door to a 50 bp cut. Markets remain calm, with expected volatility around CPI at the lowest levels of the year.

Goldman sees tariffs adding artificial pressure to inflation — around 0.14 percentage points to the core CPI.
Without this effect, core inflation would already be close to 2%, and the Fed would have a stronger case for more aggressive rate cuts. According to analysts, the peak impact of the tariffs is near, and in the coming months, core inflation is likely to cool, especially in rents and housing-related costs. Markets view this data as “good inflation” — not posing systemic risks — and expect the Fed to ignore the tariff-driven component and proceed with easing. More broadly, the combination of fiscal and monetary support, low household debt levels, and structural drivers like immigration and AI are creating favorable conditions for growth and a new wave of risk appetite. If the labor market remains stable, the balance of risk stays in favor of risk assets, and markets could be pushed even higher — potentially to “bubble-like” levels.