US Inflation Data Expected To Show 8% Increase In August: What It Means For Interest Rates

This week's U.S. inflation data could set the stage for a third straight 0.75% rate hike from the Federal Reserve. 

What To Know: The U.S. Bureau of Labor Statistics is set to release Consumer Price Index (CPI) data from August at 8:30 a.m. ET Tuesday, and the data is expected to steer investor sentiment one way or the other ahead of the Fed's policy meeting later this month.

Average economist estimates from Bloomberg are calling for an 8% increase year-over-year in the overall consumer price index. An 8% inflation reading would be down from the 8.5% number in July, but 8% inflation is still significantly elevated over historical levels. 

Core inflation, which excludes volatile food and energy prices, is expected to climb 6.1%.

Related Link: Cathie Wood Sounds Yet Another Deflation Warning Ahead Of Tuesday's Inflation Report

Why It Matters: The SPDR S&P 500 SPY has been volatile amid continued rate hikes as the Fed fights the hottest inflation numbers in more than 40 years. 

The central bank hiked interest rates by 0.75% for the second consecutive month in July, bringing its target fed funds rate up to a range of 2.25% to 2.5%.

Consumer sentiment continues to improve and Tuesday's inflation data will come in the wake of a strong August jobs report. If inflation comes in hotter than anticipated, it could confirm recent indicators and signal that another 0.75% rate hike is likely this month. 

"We are in this for as long as it takes to get inflation down," Fed vice chair Lael Brainard said in a statement last week. 

"Monetary policy will need to be restrictive for some time to provide confidence that inflation is moving down to target. The economic environment is highly uncertain, and the path of policy will be data dependent," Brainard added.

After surging to 9.1% in June, CPI data fell to 8.5% in July. 

Tuesday’s CPI reading will be the last major data release the Fed will have before making its next decision on rates, which is due at its upcoming meeting on Sept. 20.

SPY Price Action: The SPY was up 1% at $410.67 Monday afternoon, according to Benzinga Pro.

Photo: Thomas Breher from Pixabay.