Xingzheng Macro: US CPI exceeds expectations and interest rate hikes are getting closer
The Zhitong Finance App learned that Xing Zheng Macro released a research report saying that the rebound in US energy prices is driving the overall CPI acceleration from month to month. US service inflation, supercore inflation rebounded year on month; housing inflation remains sticky. The Xing Zheng macro team believes that the CPI has exceeded expectations. On the one hand, expectations of the Fed's interest rate hike are heating up, and on the other hand, there is a V-shaped rebound in asset prices. According to Walsh's previous demand for inflation trends, austerity pressure has increased. Looking backwards, the probability of a rate hike in September increased dramatically, but there is still great uncertainty about raising interest rates a second time.
The following is a summary of the research report:
US CPI in August 2026 +3.4% YoY, previous value +3.4%, expected +3.4%; Core CPI YoY +2.4%, previous value +2.5%, expected +2.4%; CPI +0.4% YoY, previous value +0.1%, expected +0.4%; Core CPI +0.3% YoY, previous value +0.2%, expected +0.2%.
gist
The rebound in energy prices spurred overall CPI to accelerate month-on-month. The situation between the US and Iran continued to be in the conflict phase in August, and the overall price of WTI crude oil remained high at around 80 US dollars/barrel. Against this background, the overall CPI for August rose as scheduled. The month-on-month growth rate of fuel prices rose 7.3pct to 4.3% from the previous month, rising to 28% year-on-year, driving the energy sector CPI to 2.1% month-on-month. Food inflation remains moderate. In August, the CPI for the food segment rose 0.1% month-on-month and fell slightly to 2.7% year-on-year.
Inflation of core commodities was moderate, prices of new and used cars rose month-on-month, and prices of electronic products continued to rise.
(1) Prices of new cars increased month-on-month, and used cars improved month-on-month but still declined year-on-year. In August, new car prices rose 0.25% month-on-month and 0.6% year-on-year, up from previous values; used car prices rose 0.37% month-on-month, but the year-on-year decline increased by 0.4 pct to -2.3%. Used car prices have been improving for two consecutive months, but they are still significantly lower than the same period last year, indicating a marginal improvement in used car demand but still unable to support a full price recovery.
(2) Demand for AI is crowding out the supply of storage and electronic components, and the price of electronic products continues to rise markedly. In August, the month-on-month increase in computer and peripheral equipment prices further expanded to 3.8%, up 8.4% year on year, and led to a marked strengthening of the CPI for the education communication segment: the CPI for the education communications segment increased by 1 pct to 1.61% month-on-month and 1.6 pct to 2.1% year over year. Therefore, the rise in electronic product prices may not be simply an improvement in terminal consumer demand, but rather an impact on the cost side — the continued expansion of AI capital expenditure has exacerbated the tight supply of memory chips and electronic components.
(3) The pressure to increase tariffs is still limited, and furniture and clothing prices are rising moderately. In August, the month-on-month growth rate of furniture was basically flat, recording 0.07%, and the year-on-year growth rate fell slightly to 2%; there was almost no change in clothing prices. The month-on-month growth rate was only 0.02%, and the year-on-year growth rate fell 0.3 pct to 3.6%. Judging from this, the impact of the July tariff relay measures has not been further reflected in the CPI of tariff-sensitive goods such as furniture and clothing. However, upstream cost pressure may still exist. The August ISM manufacturing survey showed that 18% of respondents mentioned tariff pressure in negative comments, indicating that some enterprises may still partially absorb tariff costs through inventory and supply chain adjustments.
Service inflation: Supercore inflation rebounded year on month; housing inflation remains sticky.
(1) Super core inflation: the upward trend accelerated year-on-year. In August, service inflation, excluding housing, rose to 0.54% month-on-month and to 3% year-on-year, with air tickets and wireless communication services being the main drivers. Airline ticket prices continue to be affected by the high fuel price situation in the US and Iran. Through price increases, airline ticket prices rose further 2.68% from the previous month, up 23.4% from the previous month. PPI data for the same period also showed that air passenger service prices rose 4.2% month-on-month, and aircraft fuel prices also rose markedly, indicating that fuel prices continue to spread from energy prices to transportation service prices due to the US-Iran conflict. The price of communication services also rose markedly in August, to 5.4% month-on-month. Among them, wireless communication services surged 5.9% month-on-month, but this increase may be a one-time disruptive factor, mainly due to the one-time monthly fee adjustments made by some US operators in August.
(2) Housing: Month-on-month heating, year-on-year cooling. In August, housing CPI rose 0.3% month-on-month, and the year-on-year growth rate fell slightly to 3%. Looking at each item, owners' equivalent rents and main residence rents both rose 0.2% month-on-month, indicating that housing inflation remained sticky, but there was no further acceleration; in August, homestay prices rebounded sharply. In August, homestay prices rebounded to 2.4% month-on-month from -2.8% last month, of which hotel prices rose 2.7% month-on-month, which also confirms the signs of a recovery in bed and breakfast consumption and employment in the leisure and hotel industry.
The CPI exceeded expectations. On the one hand, expectations of the Federal Reserve's interest rate hike are heating up, and on the other hand, there is a V-shaped rebound in asset prices. The core CPI for the current period exceeded expectations month-on-month, indicating that current inflation has accelerated. After the data was released, the market's expectations for the Fed's interest rate hike in September rose to 87.3%, but asset prices generally broke out of the “V-shaped” trend of falling first and then rising: at the beginning of the data release, US stock futures, long-term US bonds, and gold all fell rapidly, then gradually recovered. The three major US stock indices all eventually closed up nearly 1%. The 10-year US bond yield fell after approaching 5% in the short term, and gold prices rebounded simultaneously. How to understand the rebound in asset prices under rising expectations of austerity? First, the current CPI is the last key data before the Federal Reserve's interest rate meeting in September. After the CPI that exceeded expectations, the market believed that the probability of a bigger downturn before the meeting declined, and that the low asset prices after the data was released may also become a phased bottom for short-term transactions. As a result, some investors chose to enter the market at the low level to make up for their previous positions and drive a rapid rebound in stock and bond prices from a low point. Second, the rise in gold prices may be more due to the overrun caused by the correction of the previous day's PPI data. Third, the news of the previous temporary navigation arrangement in the Strait of Hormuz pushed international oil prices down markedly. Although it was not a direct trigger for the rebound in asset prices, concerns about energy supply and future inflation have eased marginally, reducing concerns about capital re-entry, sideways promoting the restoration of risk appetite in the equity market, and relieving upward pressure on long-term interest rates.
According to Walsh's previous demand for inflation trends, austerity pressure has increased. Judging from the year-on-month trend of core CPI, inflation did not show a clear and rapid decline: judging from data retaining 4 decimal places, the core CPI recorded 2.4462% year on year in August and 2.4665% in July, down only about 0.02pct, while the month-on-month ratio further accelerated from -0.0167% in June and 0.2154% in July to 0.2898% in August. This trend clearly did not meet Walsh's previous requirement for a “clear and sufficient speed” for potential inflation to fall back. Furthermore, the Federal Reserve's inflation target corresponds to PCE rather than CPI, so the September decision still needs to infer the PCE trend based on the current CPI and PPI: According to the Reuters survey, combined with the current PPI and CPI, many economists currently expect the August core PCE to accelerate by about 0.1 pct to 0.3% month-on-month compared to July, which also means that the potential inflation cooling trend has stopped. Therefore, according to the response function currently given by Walsh, it is likely that the Federal Reserve will need to adopt an interest rate hike to adjust the policy in September. On the other hand, the Federal Reserve is currently facing strong political interference. Acting when the data and previously given guidelines already support tightening will also help reduce market concerns about the damage to the independence of the Federal Reserve. Looking at fundamentals, both the PMI and non-farm payrolls data released earlier show that the US economy is still resilient, and the economic situation has not yet formed a constraint on policy tightening. Therefore, policies at this stage need to focus on inflation, and strong fundamentals also provide some tolerance for a single interest rate hike. A 25-bp policy adjustment will not suppress economic activity for the time being. Furthermore, in a context where the market is already highly priced to raise interest rates in September, if the Federal Reserve ultimately chooses to stay on hold, it may further increase the uncertainty of the policy path and asset price fluctuations, and long-term US bond yields may have an upward risk.
Looking backwards, the probability of a rate hike in September increased dramatically, but there is still great uncertainty about raising interest rates a second time. At present, the market has basically absorbed expectations of at least one rate hike before October and two interest rate hikes during the year, but there is still great uncertainty about whether the second rate hike will be implemented. On the one hand, although the US economy is still resilient, it may not be able to continue its current strength. If fundamentals weaken marginally, the need for further interest rate hikes will also decrease; on the other hand, whether the US and Iran situation can ease, whether oil prices can continue to fall, and whether inflationary pressure cools down will also be the key to determining whether a second rate hike can be implemented during the year.
Risk warning: Geographical conflict uncertainty, changes in US inflation exceeding expectations, uncertainty about the Federal Reserve's monetary policy.