Looming inflation report could hold an unpleasant surprise for markets

Wall Street’s newfound faith in a soft landing faces a big test later this week with an economic report that could paint a deceptively benign inflation picture. The consumer price index, a widely followed gauge of goods and services costs across the U.S. economy, is expected to show a 0.2% increase in July, according to the Dow Jones consensus estimate. That would translate into a 12-month headline increase of 3.3%. However, the risk on that reading could be to the upside if a tracking measure the Cleveland Federal Reserve uses is accurate. The central bank district’s Inflation Nowcast model points to a 0.4% rise that would equate to a 3.4% annual rate. While the 12-month figure would be a good deal below the 8.5% pace of a year ago , it’s still well above the Fed’s 2% annual target. “The financial markets would not welcome those numbers the way they did June’s lower …

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