TD Securities: US August Inflation Set to Cool, But Core Pressures Persist

TD Securities projects that US headline inflation cooled to 2.6% year-over-year in August, down from 2.9% in July, while core inflation is expected to remain sticky at 3.2%, according to the firm’s latest forecast released this week.

What the Data Shows

The forecast, based on official Bureau of Labor Statistics data through July, indicates that energy prices likely provided a downward pull, while shelter costs and services inflation continue to keep core pressures elevated. TD Securities expects the monthly headline CPI to rise just 0.1% in August, while core CPI is seen increasing 0.2%.

These estimates align with the broader market consensus, but the firm cautions that the details will matter more than the headline. “The disinflation trend remains intact, but the pace is slow, and the Fed needs to see more consistent progress before declaring victory,” the note said.

Why It Matters for the Fed

The August CPI report, scheduled for release on September 13, will be one of the last major data points before the Federal Reserve’s September policy meeting. With the labor market showing signs of cooling, policymakers are weighing whether to begin cutting interest rates.

TD Securities expects the Fed to hold rates steady in September, but the firm sees a growing chance of a cut in December if inflation continues to moderate. “The bar for a September cut is high, but a soft CPI print could tilt the balance,” the note added.

Market Implications

Bond markets have already priced in a high probability of a rate cut by year-end, but a stronger-than-expected core reading could trigger a repricing. Equities, on the other hand, may react positively to any sign that inflation is cooling, as it supports the case for easier financial conditions.

For consumers, the slowdown in headline inflation offers some relief, but persistent core inflation means everyday costs—especially for housing and services—remain elevated. This divergence is likely to keep the Fed cautious.

Conclusion

TD Securities’ August inflation forecast points to continued moderation in headline prices but persistent stickiness in core components. The upcoming CPI report will be critical in shaping the Fed’s near-term policy path, with implications for markets and household budgets alike.

FAQs

Q1: What is the current US inflation rate?
As of July 2024, the US headline inflation rate was 2.9% year-over-year, with core inflation at 3.2%. The August report, due September 13, is expected to show headline cooling to 2.6%.

Q2: When will the Fed next decide on interest rates?
The Federal Reserve’s next policy meeting is scheduled for September 17-18, 2024. Markets are widely expecting rates to remain unchanged, with a potential cut later in the year if inflation data cooperates.

Q3: How does inflation affect everyday consumers?
Persistent inflation, especially in core categories like shelter and services, means higher costs for housing, healthcare, and dining out. A slowdown in headline inflation provides some relief, but sticky core inflation keeps overall living costs elevated.