This Thursday, investors will be closely monitoring one of the pivotal data points that the Federal Reserve will factor into its forthcoming interest rate deliberation: the Consumer Price Index (CPI) for September.
Scheduled for release at 8:30 a.m. ET, the report is projected to reveal headline inflation at 3.6%, representing a marginal deceleration from August’s 3.7% annual price increase, as per Bloomberg’s estimates.
In the preceding month, it is expected that consumer prices in September rose by 0.3%, demonstrating a slower pace of increase compared to August’s 0.6% monthly surge.
Particular attention will continue to be devoted to the energy sector, given that energy prices were the primary catalyst for the majority of August’s price hikes. Energy prices, which experienced fluctuations during the ongoing Israeli crisis, are anticipated to have moderated last month. Bank of America predicts a modest month-over-month rise of 0.4% after the 5.6% spike seen in August. On the other hand, retail gasoline prices are likely to remain relatively stable during the month.
Bank of America also foresees persistent upward pressure on food prices, which registered a 4.3% increase in August on an annual basis and a 0.2% increase on a monthly basis.
In a “core” assessment, excluding the more volatile costs of food and gas, prices in September are projected to have climbed 4.1% over the previous year, marking a slowdown from the 4.3% annual surge witnessed in August, according to Bloomberg data. Monthly core prices are expected to have increased by 0.3%, mirroring August’s monthly uptick. Notably, used car prices are expected to have decreased further last month after a 1.2% monthly drop in August and a 1.3% decrease in July.
Bank of America’s analyst Michael Gapen warned that this could potentially be the last significant decline in used car prices in the short term, citing modest increases in wholesale prices in August and more pronounced increases in the first half of September. Excluding used cars, the bank anticipates that goods prices will remain relatively stable.
The bank also anticipates that airfares will experience another increase, alongside lodging and shelter inflation, while rent and owners’ equivalent rent, representing the hypothetical rent a homeowner would pay, are likely to remain unchanged from August.
Gapen noted, “Should the print come in as we expect or above our expectations, it would keep a November hike in play.”
Inflation has consistently exceeded the Federal Reserve’s 2% target. A labor market that, while softening in certain areas, remains tight, combined with an upside surprise in wholesale inflation data, suggests the Federal Reserve may persist in raising interest rates.
However, recent dovish commentary from the Federal Reserve has led the markets to anticipate that the central bank will maintain its current interest rates at the upcoming policy meeting next month. As of Wednesday afternoon, market indicators suggested a roughly 91% likelihood that the Federal Reserve would keep rates unchanged, based on data from the CME Group.
