Mufg us macro strategy inflation update august 2026 cpi preview

Key arguments

• August 2026 headline CPI is expected at 0.32% MoM (3.3% YoY) and core CPI at 0.23% MoM (2.4% YoY), in line with Bloomberg consensus.
• The 3-month annualized core CPI rate would fall to 1.7% under MUFG's forecast, below the pre-pandemic average and the Fed's 2% target, indicating low to moderate inflation momentum.
• Core goods inflation turned positive in July, though used auto deflation will limit the goods contribution; airline fares should stay elevated on high oil prices, while college tuition growth moderates.
• A 0.2% core print is expected to deliver a 4-6bp Treasury rally, as the pre-CPI sell-off is attributed to non-US fundamentals (ECB hike and oil).
• A 0.3% core reading would push September FOMC hike expectations toward 90%, making it hard for the Fed to skip; a 0.1% reading would cut hike odds to a coin flip, with MUFG expecting the Fed to hold and a 7-11bp rates rally.
• FOMC vote splits are mapped to scenarios: 0.1% -> 2/10 hike votes, 0.2% -> 5/7, 0.3% -> 12/0 unanimous hike, with Warsh bringing a unanimous vote for a 25bp increase.

Corresponding source evidence

1. ▪ What to watch out for: Core goods inflation returned to positive territory in July, with some of that momentum likely to carry forward into August, though deflation of used auto prices will limit the monthly contribution from goods.
2. For services, growth in college tuition should moderate (following strong growth last month which contributed ~0.01% points to overall CPI), but airline fares inflation is expected to remain elevated amid high oil prices.
3. Market Thoughts ▪ Base-case: Given the rates sell-off ahead of CPI, it will all depend on the composition of inflation and rounding (within the 0.15-0.24 range).