The last major hurdle before interest rate cuts: August CPI slightly rises, likely to hinder the Federal Reserve's easing pace next week

According to the Zhitong Finance APP, analysts believe that this week's key inflation report is expected to show that the U.S. CPI rose again in August, but the increase is not significant, which will not hinder the Federal Reserve from lowering the benchmark interest rate at next week's meeting. According to Dow Jones, economists expect these reports to show that the overall monthly data will grow by 0.3%, including the overall all-items index and the key core data excluding the more volatile food and energy prices.

If this is the case, then the overall CPI year-on-year growth rate will rise to 2.9%, the highest level since January, and far below the Federal Reserve's target level of 2%, increasing by 0.2 percentage points from July. On the surface, this seems to prevent the Federal Reserve from easing monetary policy at next week's meeting.

However, two factors will come into play. First, the core inflation rate is expected to remain at 3.1%. Second, the rise in inflation is mainly expected to come from goods significantly affected by tariffs, rather than the service prices that account for a larger proportion (about $30 trillion) of the U.S. economy.

If these trends do exist in the report, then Federal Reserve policymakers are expected to overlook this growth phenomenon and instead focus more on the increasingly weak labor market. This market may need lower interest rates to get a boost. Currently, most Federal Reserve officials view tariffs as a one-time price increase, believing they are unlikely to trigger long-term inflation.

James Knightley, Chief International Economist at ING Group, stated: "Overall, current inflation is still above the level expected by the Federal Reserve. They will consider it from a more macro perspective. The U.S. economy is primarily service-oriented."

The tariff measures implemented by Trump are likely to further reflect in the inflation situation in the form of rising commodity prices, such as prices for cars, furniture, and clothing.

However, economists at Goldman Sachs stated in a report: "Aside from the impact of tariffs, we expect the overall inflation rate to decline further, reflecting that the contributions of housing rents and the labor market to inflation are decreasing."

However, this is a double-edged sword for the economy, as consumers feel pressure from falling housing prices and wage growth not meeting expectations, which provides another incentive for interest rate cuts.

Knightley said: "When these three factors (price issues, income issues, wealth issues) occur simultaneously, they can have a significant negative impact on economic growth prospects. This has already begun to make the Federal Reserve more vigilant about our development trends."

In addition, the U.S. Bureau of Labor Statistics is scheduled to release the August PPI on Wednesday, followed by the more closely watched CPI the next day. The PPI (which has a leading effect on the CPI) is seen as an indicator of market supply pressures. Although it rose by 0.9% in July, the increase in August is expected to slow down