Inflation data out of the US and a coin toss ECB meeting are this week’s marquee events in the macro-policy space.

CPI figures for August, due Wednesday, should show a meaningful uptick in the pace of headline inflation, although in this context, “meaningful” just means price growth is set to quicken materially. The update will only be meaningful for the Fed to the extent core inflation is warm too.

Consensus suspects the headline gauge rose at the briskest pace since June of last year, when the Fed delivered the first of what would ultimately be four straight 75bps rate hikes.

Core price growth was likely steady at 0.2% for a third straight month. In theory, what matters is the underlying trend, and in that regard, traders will look to CPI-derived versions of the Fed’s favored “supercore” series (i.e., core services excluding the various housing and shelter components) for clues about the trajectory of policy. But it’ll be interesting to see how resilient (or not) markets are in the face of a hot headline print.

“While monetary policymakers will surely look beyond the energy driven gain in the headline series, we’re less convinced that financial markets as a whole will be as sanguine about the bounce,” BMO’s Ian Lyngen and Ben Jeffery said. “This isn’t to suggest investors believe policymakers are poised to refocus on headline inflation, rather the experience of 2022 combined with the Fed’s ongoing communication that there is ‘work to be done’ to reestablish price stability has left the market wary of any indication that Jerome Powell is once again behind the curve.”

If you don’t count retail sales, due Thursday, the CPI release is the last top-tier data point the Fed will get prior to the September FOMC meeting. For now, the market still assigns roughly 50% odds to another hike from Powell through the November gathering. The CPI report would have to be a complete disaster to put a hike back on the table for this month’s meeting.

Rates traders will be eying the new dot plot closely on September 20. Although Powell declined to engage in any pontification around r-star in Jackson Hole, the neutral rate debate remains topical.

If you assume the long run dot doesn’t shift up, current market pricing suggests policy will still be restrictive to the tune of ~200bps by the end of 2024.

In addition to CPI (and PPI the following day), investors and policymakers will also get an update on nominal spending in the US courtesy of retail sales on Thursday. Personal consumption was more robust than expected in July and any evidence to support the notion that the American consumer continues to freely spend into a still-expanding services sector could be met with consternation from equities trading in “good news is bad news” mode. Consensus expects retail sales rose 0.2% in August.

Meanwhile, the ECB may or may not try to squeeze in another 25bps hike. Markets have the meeting priced at ~40%. The European economy is mired in quasi-stagflation, and Germany is in a recession. Ostensibly, the perilous growth outlook argues against another hike, but core and services inflation remain more than double the bank’s target, indicative of an inflation problem driven by “domestic factors,” as one bank euphemistically put it following the last inflation update from Eurostat.

Given the trajectory of the euro-area economy, it seems reasonable to suggest that September will be the last chance for the ECB if the hawks do intend to get one more rate increase on the books. Paradoxically then, the flagging economy might be an excuse for a hike.

Whatever the case, Christine Lagarde will be adamant about the Governing Council’s commitment to vigilance. The problem (and this is evident from the simple visual above) is that policymakers haven’t had much, if any, success in beating back underlying inflation pressures. But, again, the European economy looks fragile and it’s clear from several key data series that the monetary policy transmission mechanism is working. Just not on core inflation. (Try not to chuckle.)

Also on deck in the US: NFIB, the preliminary read on University of Michigan sentiment for September and supply events courtesy of 10- and 30-year re-openings.

China will release activity data for August on Friday. It may or may not include an update on the youth jobless rate, with Xi stopped publishing last month after it rose high enough to become an embarrassment for the Party.