Don’t be fooled by a drop in US headline inflation. Markets will be on the lookout for another figure on Wednesday.

Traders, investors and economists expect Wednesday’s consumer price index report to show a decline in the US annual headline inflation rate for July. But there is another figure buried in the consumer price index data that has the propensity to rock markets.

It’s called the year-over-year core CPI reading, a measure that strips out volatile food and energy costs. It came in at 5.9% for the 12 months ending in June, and the consensus view is that it will rise to 6.1% year-over-year in July. Gargi Chaudhuri of BlackRock Inc., the world’s largest money manager, sees the core reading reaching even a little higherat 6.2%, while a pair of Goldman Sachs analysts warn that the near-term US inflation outlook is “likely to remain uncomfortably high.”

Read: Goldman Sachs Says It’s Too Soon For Markets To Trade “A Full Fed Pivot”

A higher move in the core annual CPI rate would be significant because it would be seen as reflecting the true underlying trend in inflation, while also dashing hopes widespread in financial markets over the past month that price gains have reached its peak. In general, many traders and investors have latched on to July’s overall annual headline CPI rate, and the view that it is poised to fall to 8.7% or 8.8%, from a nearly 41-year high of 9.1% in Juneafter taking into account recent drops in gas and commodity prices.

Watch: US consumers were probably somewhat relieved by price increases in July, but the Fed won’t feel any better

“The outlook for inflation remains the primary concern for investors,” Wilmington Trust Investment Advisors Chief Investment Officer Tony Roth and Chief Economist Luke Tilley wrote in an email on Tuesday. “Persistent inflation is weighing on consumer and business confidence, but economic data remains quite mixed, raising concerns that aggressive Fed policy could push the US into recession.”

“While we still expect inflation to slow going forward, some components will remain stubbornly high and complicate the outlook,” they said.

The signs of broad financial market expectations that inflation is about to abate are clear: US stocks have generally risen from their lows in mid-June, though they were down on Tuesday afternoon. Meanwhile, medium- and long-term Treasury yields have fallen from their highs in June, along with breakeven rates, according to data from Tradeweb.

In the 24-hour forex market, where the dollar remains sensitive to US data surprises, “the market must decide if the slowdown in the headline is more important than the solid and rigid core”, said TD Securities strategists Oscar Munoz, Mazen Issa and Gennadiy Goldberg.

At Pennsylvania-based Hirtle Callaghan & Co., which oversees some $20 billion in assets, Brad Conger, deputy chief investment officer, said he thinks inflation and the Fed’s willingness to tackle it are being underestimated. Conger sees the growth of inflation shifting from goods to services, while noting how difficult it is to “jump start” price awareness once inflation takes hold.

“Suppose you work in a company of 1,000 people,” Conger wrote in an email. “In the month of May, 28 of his colleagues resigned and accepted new offers… His employer gives everyone else the economy-wide average hourly wage increase of 3.6% at an annualized rate. But here’s the problem. The 972 employees who stayed know exactly what those who left accepted in their new position. It has become your new job reservation price. This is how inertia in inflation develops and why it is so difficult to eradicate.”

“Rental works the same way,” said the deputy chief investment officer. “A small proportion of new tenant leases show up on average, but everyone else knows what the effective new rent is.”

As of Tuesday afternoon, the three major stock indexes DJIA,
-0.35%

SPX,
-0.62%

comp,
-1.37%
were down, with investors reluctant to take big trades ahead of Wednesday’s CPI data. Meanwhile, the Treasury curve inverted deeper as the spread between 2-year and 10-year yields narrowed to an intraday low of nearly minus 50 basis points, with 2-year TMUBMUSD02Y,
3,263%
rising at a faster rate than the 10-year rate TMUBMUSD10Y,
2,800%.

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