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Equity futures are taking a cautious tone heading into today’s CPI report for August where headline inflation is expected to rise by 0.6% m/m (the largest increase since June 2022) and 3.6% on a y/y basis. European equity market performance hasn’t helped as most indices in the region are down by about 1% the ECB is likely to hike rates this week by another 25 bps due to stubbornly high inflation. Not helping matters is the fact that economic data in the region including UK GDP and German Industrial Production both came in weaker than expected.

As we’ve noted numerous times in the past, the easy job has been done when it comes to headline inflation, and getting it back down to levels more in line with the pre-COVID range will take time. In this morning’s report, the focus will shift to core which is expected to rise by just 0.2% m/m taking the y/y reading down to 4.3%. If the report comes out in line with expectations, it would be the lowest y/y reading in Core CPI since September 2021, and it would also represent the largest decline in the y/y reading from a 12-month high since the early 1980s.

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