CIBC has weighed in on the unexpected rise in the U.S. CPI for August, dismissing any quick action from the Federal Reserve. Despite an upside surprise in the latest inflation data, the broader economic signals point to a slowing U.S. economy. As a result, CIBC expects the Fed to remain on hold for the time being.

Key Points:

• CPI Beats Consensus: Core inflation was up by 0.3% month-over-month in August, outpacing market expectations of 0.2%. Year-over-year, core inflation eased to 4.3% from 4.7%.

• Strength in Gasoline Prices: Headline inflation rose by 0.6% month-over-month and climbed to 3.7% year-over-year, primarily due to stronger gasoline prices.

• Mixed Economic Signals: Despite the inflationary pressure, the broader economic data suggest that the U.S. economy is slowing down.

• Possible Fed Hike in Fall?: The data does leave room for the possibility that the Fed might consider a rate hike in the fall, although it's not the most likely scenario.

Trading Recommendations:

• Stay Cautious: Traders should exercise caution and keep a close eye on any new economic data and Fed statements.

• Defensive Positioning: Given the economic uncertainty, a defensive stance in trading is recommended.

Implications:

For Traders:

• Risk Management: Traders should be prepared for potential volatility in USD-related assets.

For Policymakers:

• Fed's Dilemma: The Fed will have to balance the upside surprises in inflation against signs of a slowing economy, making a rate hike less certain.

Conclusion:

Today’s CPI data may have surprised on the upside, but CIBC advises against expecting a quick policy response from the Fed. With broader economic indicators pointing to a slowdown, it's more likely that the Fed will stay put, despite the higher-than-expected inflation figures.