US Rates: And you’re not gonna reach my telephone

August US inflation data revealed a 0.29% rise in core CPI, exceeding consensus expectations primarily due to an unexpected spike in cell phone service costs. Despite this, core PCE inflation remains elevated at 3.3%, prompting a shift in Federal Reserve policy expectations from a single December hike to two consecutive hikes in September and December. While headline inflation data has surprised to the downside, creating headwinds for breakeven markets, the combination of a hawkish Fed and the gradual pricing out of commodity risk suggests a narrowing bias in inflation markets. Current positioning in TIPS is at its most short in a year, leaving the asset class vulnerable to further downward pressure as seasonal weakness persists through the end of the year.