There were some big market moves after today's CPI report but they would have been even bigger if a Fed decision was closer. As it stands, we get another full slate of economic data before the Sept 21 FOMC.
CIBC is sticking with a 50 basis point hike for September and the market is now leaning that direction as well. Implied odds are at 62%, up from about 30% before CPI.
"While total CPI is now over the hump, core inflation is still advancing at a pace a tick too hot for the Fed's taste," economists write. "And with the stickiness in some shelter components, that should continue to be the case for some time still. Today may have provided some relief, but given the recent payroll numbers and the Q2 employment cost index, the Fed needed that to stay on track for only 50 bps increase at its next meeting, rather than a larger 75 bp move. We still see that 50 bp hike as the most likely step in September, with another 50 bps of hikes to come in Q4."
CIBC also took a closer look at the core numbers in the CPI and the slow passthrough of declining housing demand. They flagged goods prices declines ahead and the core categories are a mixed bag.
"The medical care index continued to rise, as did the indices for car insurance and household furnishings. But while new cars posted another strong advance of 0.6% on the month, used vehicles fell 0.4%. Prices for communication and apparel also fell. We could see more weakness in the prices of discretionary goods in the months ahead as consumption tilts further towards services and as consumers resist higher prices."
