U.S. CPI Data in Focus: Base Effect to Aid Downtrend


  • High volatility is expected ahead of U.S. CPI data release
  • Both the CPI and core CPI are expected to decline, primarily due to the base effect
  • And, odds of a 0.25% interest rate hike at the upcoming meeting on July 26 stand at 93%

The markets are bracing for a day of high as we await the release of U.S. inflation data. When comparing year-over-year data, both and (excluding the more volatile components) are expected to show a decline, as illustrated below.

U.S. CPI Data

The anticipated decline in CPI and core CPI figures is primarily attributed to the base effect. We can break down the calculation as follows:

CPI (t) = CPI (t-1) + Change in CPI (t) – base effect

In the case of the regular CPI, the calculation would be 4% + 0.3% – 1.19% = 3.1%, precisely matching the expected figure. This calculation estimates the expected inflation detection by factoring in the base effect.

CPI MoM Trends

Source: Fundstrat, Bloomberg, BLS

The base effects suggest that the August survey for the will have minimal impact, with potential fluctuations over the subsequent three months. In contrast, for the , anticipate further declines in the next three months, assuming occasional monthly changes of approximately 0.3%.

It is essential to highlight that we have not observed the predicted increases indicated by the CPI at 4% and core CPI at 5.3%. However, we will likely witness increases in July, with the CPI expected to be around 3% and the core CPI around 5%. These figures are subject to confirmation and may change over time. Currently, the of a 0.25% interest rate hike at the upcoming meeting on July 26 stand at 93%.

Fed Rate Monitor

Source: Investing.com

The markets have started the week on a positive note, creating a sense of anticipation for the upcoming release of CPI data. It is expected that the CPI figures will show a downward trend.


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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counseling or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. As a reminder, any type of asset is evaluated from multiple points of view and is highly risky; therefore, any investment decision and the associated risk remain with the investor. The author does not own the stocks mentioned in the analysis.

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