August CPI report likely to show ’sticky’ inflation: BofA

Bank of America forecasts U.S. inflation to remain 'sticky' in August, with headline CPI projected to rise to 2.9% year-on-year and core CPI holding at 3.1%. This upward pressure is attributed to rising energy prices, persistent tariff-driven goods inflation expected to continue feeding through to consumers, and firm non-housing services costs like airfares and lodging. Consequently, BofA anticipates core PCE inflation to increase to 3.0% year-on-year in August, indicating broad-based and sustained price increases.

Analysis

Bank of America's latest analysis indicates U.S. inflation will remain persistent, or 'sticky', through August. The bank forecasts a 0.3% month-on-month rise in both headline and core Consumer Price Index (CPI), projecting year-on-year headline CPI to accelerate to 2.9%—its highest level since last July—while core CPI is expected to hold firm at 3.1%. This upward pressure is attributed to a combination of factors, including rising energy prices, firm non-housing services costs, and sustained goods inflation driven by tariffs. Specifically, BofA anticipates core goods prices will rise 0.2% month-on-month as tariffs are gradually passed to consumers in categories like household furnishings and apparel, a trend expected to persist over coming quarters. Furthermore, non-housing core services are projected to have increased by 0.4% month-on-month, propelled by airfares and lodging. These combined pressures lead BofA to estimate that core Personal Consumption Expenditures (PCE) inflation, the Federal Reserve's preferred gauge, will rise to 3.0% year-on-year, suggesting broad-based and sustained price increases that complicate the path toward monetary policy easing.

Key Decisions for Investors

• Investors should anticipate a more hawkish-for-longer stance from the Federal Reserve, as the forecasted stickiness in core CPI and a rise in core PCE to 3.0% lessens the probability of near-term interest rate cuts.
• It is prudent to review portfolio exposure to consumer discretionary sectors, particularly those mentioned like apparel and household furnishings, which may face margin pressure from the continued pass-through of tariff-related costs.
• Given the outlook for persistent inflation, investors should remain cautious on long-duration fixed income assets, as yields are likely to remain elevated or face upward pressure.
• Monitor upcoming official inflation reports closely, as a confirmation of BofA's forecasts could trigger a negative repricing in equity and bond markets sensitive to higher inflation and interest rate expectations.