Gold prices fall as geopolitical tensions ease; U.S. CPI looms
For this week, we prep for the July CPI report, which could play a crucial role in shaping market expectations for inflation. Market-based measures, such as inflation swaps, currently project elevated inflation into 2026, with attention focused on whether upcoming data confirms, accelerates, or challenges these trends.
This week brings the release of the July CPI report, a key event given expectations for inflation to tick higher. Market-based indicators and recent survey data from regional Federal Reserve banks and the ISM suggest inflation could rise meaningfully from current levels. While this is not expected to match the extreme rates seen in 2022 or 2023, it could push inflation back into the 3.5% to 4% range.
The market reaction will hinge on whether data confirms this upward trend or shows inflation remaining subdued. In this context, “the market” primarily refers to the inflation swaps market, rather than the stock or bond markets.
For August 12, consensus forecasts call for core CPI to increase 0.3% month-over-month (up from 0.2%), and Core CPI 3.0% year-over-year (from 2.9%). Headline CPI is expected to decelerate to 0.2% monthly (from 0.3%), while Headline CPI rising to 2.8% annually (from 2.7%). The CPI fixing market points to similar figures, with July’s year-over-year number rounding to 2.8%.
In the inflation swaps market, there is a three-month lag in expirations. Current pricing shows inflation peaking at around 3.4% in May 2026, then gradually declining. Over recent months, market expectations have shifted—forecasts for peak inflation have been pushed out in time, with slightly lower peak levels than earlier projected. If CPI comes in hotter than expected, the curve could move higher and peak sooner.
Currently, one-year inflation swaps are near 3.4%, two-year swaps around 3.0%, and five-year swaps near 2.7%. Since April, inflation expectations have generally been rising across maturities. The five-year swap is especially important—if it rises above 2.8%–2.9%, it would indicate markets see longer-term inflation as a persistent problem.
Recent data supports this caution: the ISM Services Prices Paid index hit 69.9 in July, one of the highest readings since early 2023, while ISM Manufacturing Prices Paid also remains elevated. Both tend to lead CPI by about three months. Regional Fed surveys echo this upward trend.
This week also brings the PPI report on August 14, expected to show year-over-year growth of 2.5% (from 2.3%) and core PPI at 2.9% (from 2.6%). Import/export prices and retail sales arrive on August 15, along with the University of Michigan inflation expectations survey, where the five-year expectation remains at a multi-decade high of 3.4%.
Inflation expectations often move in tandem with Treasury yields. The 10-year yield has been consolidating between 4.20% and 4.50%, while the 30-year has held near 4.80%–4.85%. A rise in inflation expectations could push these higher, steepening the yield curve—potentially positive for banks, provided inflation does not erode margins excessively.
Technical signals suggest the 10–2 yield curve could break toward 1%, driven by rising long-term rates and easing short-term rates. This week’s inflation data could be the catalyst that determines whether that move materializes.