Inflation is still sizzling hot but is expected to have moderated in August, as gasoline prices dropped, supply chains improved and the cost of travel fell.

The consumer price index will be released Tuesday at 8:30 a.m. ET, and the report could be a bit messy since headline inflation is expected to fall while core inflation, excluding energy and food, should rise. The report is also key because it is expected to influence the Federal Reserve’s decision on how much to raise interest rates next week — and more importantly, in the long term.

CPI for all items is projected to have actually declined by 0.1% month over month in August, after a flat reading in July, according to Dow Jones. On an annual basis, headline CPI would then be running at a pace of 8%, down from 8.5% in July.

But excluding gasoline, core CPI is expected to rise by 0.3%, the same as July. On a year-over-year basis, that would make for a 6% increase, even hotter than the 5.9% gain in that month.

For the Fed, the report is widely expected to confirm it needs to keep up its fight against inflation with an interest rate hike next week of 0.75 percentage point, the third of that size in a row. If the inflation data is weaker than expected, some economists say there’s an outside chance the Fed could raise by just a half percent.

“If anything, the risk is it could come in a little bit weaker,” said Aneta Markowska, chief economist at Jefferies. “I have energy goods down 10.2%. That should knock off a half percent. I think the core is going to be more important.”

Gasoline prices are the biggest driver of the decline in energy. Since peaking at $5.01 in mid-June, the national average for unleaded gas has dropped all summer, to an average of $3.71 per gallon Monday, according to AAA.

Markowska expects headline CPI to decline by 0.2%, but sees a rise in core of 0.3%. Shelter is one area expected to rise, while used car prices are forecast to fall.

“I think we’re going to see a repeat in terms of airfares and hotel prices. They dragged down the core CPI last month. It looks like airfares will be down 8%,” said Markowska. “They were up 40% from March to May. We’re just unwinding a portion of that.”

Economists say the base effects of comparing the number to last year are behind the jump in August core inflation.

“Because of base effects annual core inflation will likely accelerate in the next two reports, which would make uncomfortable headlines for the Fed,” wrote Blerina Uruci, chief U.S. economist at T. Rowe Price. She said that it should not matter to central bank officials because they will be more focused on momentum, and will be watching the three-month and six-month annualized pace.

“But they are also sensitive to how it will look to the public and Congress. Even more reason to maintain a hawkish focus,” she added.

Strategists say the Fed’s Sept. 21 rate decision may be affected by the August CPI report, but the details inside that report may be more important in terms of what they say about the longer-term outlook. That could help shape the expectations for the Fed’s end, or terminal, rate when it stops hiking.

Market expectation for the Fed’s terminal rate have been inching higher, and in the futures market, the view is it will reach 4% by early next year. Markowska expects it could reach 4% to 4.25% in January.

“This is where we start looking for whether there is a shift in core patterns, where the Fed can ramp down or not,” said Diane Swonk, chief economist at KPMG. She expects policymakers to raise the fed funds target range by 75 basis points next week. That would take the fed funds target range to 3% to 3.25%. A basis point is 0.01 percentage point.

“This gets them into tight policy. Then it’s a question of how tight do they want to go,” Swonk said.

This is a key question for markets, since some pros expect the Fed to pause by year-end. Others expect a pause early next year, and some investors believe the central bank will begin to reduce interest rates in the second half of 2023.

Fed officials, led by Chair Jerome Powell, have emphasized that they will raise rates and keep them there. Yet, the market is still betting that policymakers will not be as tough as their talk.

“I don’t think this report changes much for the Fed. I think the problem for the Fed is even as inflation is slowing, growth momentum is picking up in part because energy prices are lower,” Markowska said. “That’s boosting purchasing power.”

She said consumers appear to be diverting dollars that had been going to fueling their cars to other goods and services. That could keep the economy hotter than the Fed desires, and she is now expecting growth in the third quarter of 3% or more.

“That’s above-trend growth at a time when the Fed needs to engineer below-trend growth,” Markowska said.