The most important number of the week drops on Wednesday, October 14: the US Bureau of Labor Statistics releases the September Consumer Price Index at 8:30 a.m. Eastern Time, and markets expect it to show inflation accelerating. Consensus forecasts point to headline inflation of 3.7% year over year — up from 3.4% in August — with core inflation ticking up to 2.5% from 2.4%.
What to expect from the September CPI report
The inflation forecast rests on one big driver: energy. In August, overall CPI rose 0.4% month over month and 3.4% year over year, with gasoline prices jumping 3.9% on the month, according to data summarized by CryptoCompass. Barclays and Morgan Stanley both expect September’s headline number to accelerate on a further significant rise in gasoline prices, according to Wall Street Insight’s reporting.
Core inflation — which strips out food and energy — is where the more encouraging story sits. Both Barclays and Morgan Stanley forecast a 0.24% month-over-month rise in core CPI for September, down from 0.29% in August, partly on a pullback in wireless communication service prices, per Wall Street Insight. Natixis economists Christopher Hodge and Selin Aker expect a 0.19% core increase and a 0.6% headline increase, calling the hotter August print an outlier, Kitco News reports.
“If our forecast is accurate, core inflation on the year should remain stable at 2.4%, while the 3m annualized rate would increase to 2.8%… and the 6m annualized rate would fall a hair to 2.55%,” Hodge and Aker wrote in Natixis’s October CPI Preview. Natixis believes the recent acceleration in headline inflation is largely driven by energy and food prices, not evidence of a renewed broadening of underlying inflation: “We continue to think that inflation breadth is improving, albeit in fits and starts.”
The bigger question for markets is what a hot-or-cold number means for the Federal Reserve. The central bank raised interest rates by 25 basis points on September 16, bringing its target range to 3.75%–4.00%, as summarized by The Coin Republic.
The Fed’s October decision hangs on the data
The September CPI report lands just two weeks before the Fed’s October 27–28 policy meeting. Minutes from the September meeting indicated that “most” officials expect one more rate hike this year — but also suggested there is no urgency for October, according to Wall Street Insight’s reporting. Fed Governor Waller has stated that rate hikes do not need to occur at consecutive policy meetings, and officials can flexibly time their decisions based on economic data.
Barclays Research believes that despite recent inflation risks remaining tilted to the upside, Fed officials are likely to keep rates unchanged in October, continuing to observe subsequent data and pushing a potential 25-basis-point hike to December, per Wall Street Insight. The market has already moved accordingly: the probability of a Fed rate hike at the October 28 meeting has dropped to 19.4% from 42.5% a month ago, according to CoinDesk’s AI Desk.
Natixis goes further: last month’s Fed rate hike may be the only one of the current cycle, with the September CPI report likely to land in line with expectations and the August spike proving to be an outlier, Kitco News reports.
Fed Chair Kevin Warsh is also scheduled to deliver a speech in Thailand on October 15, where he may comment on monetary policy and the interest rate path, according to CoinDesk. Warsh has frequently cited “underlying inflation” as a key concept — and while that has typically been used as shorthand for core inflation, he has alluded to alternative measures such as trimmed-mean and median inflation, Natixis notes.
Consumers are already bracing for higher prices
Whatever the report shows, households are already worried. The University of Michigan’s final September reading found consumers expecting prices to rise 4.6% over the next year — up from 4.0% before and the highest since June — while longer-run expectations stood at 3.4%, Kalkine reports. Consumer sentiment dropped 3.6 points to 48.1.
The labor market, meanwhile, is cooling: September payrolls came in at 29,000 with wages up 3.0%, per Kalkine. That combination — rising price expectations alongside slower pay growth — could weigh on household confidence if the CPI print surprises to the upside.
Wednesday isn’t the only inflation data point this week. The Fed’s Beige Book arrives the same day, and the September Producer Price Index and September retail sales follow on Thursday, October 15. Morningstar’s calendar puts expectations for PPI at a 0.5% month-over-month increase (vs. 0.4% in August) and retail sales growth at 0.35% month over month (vs. 1.20% in August).
The bottom line: a report roughly in line with the 3.7% consensus would likely confirm the market’s current bet — a Fed pause in October, with the debate shifting to December. A hot surprise would reopen the October question; a cool one could end the hiking-cycle debate altogether.
Read next: PepsiCo’s Q3 earnings warning on inflation pressures
Frequently Asked Questions
When is the September CPI report released?
The US Bureau of Labor Statistics releases September’s Consumer Price Index on Wednesday, October 14, at 8:30 a.m. Eastern Time.
What is the inflation forecast for the September CPI report?
Market forecasts point to headline inflation of 3.7% year over year (up from 3.4% in August) and core inflation of 2.5% (up from 2.4%). Natixis expects a 0.6% monthly headline increase and a 0.19% core increase, calling August’s hot print an outlier.
How will the CPI report affect the Fed’s October rate decision?
The Fed’s September minutes showed most officials expect one more hike this year but see no urgency for October. Barclays expects the Fed to hold rates in October and consider a 25-basis-point hike in December. A hot CPI surprise could reopen the October question; an in-line or cool print would reinforce the pause bet. The Fed next meets October 27–28.
What other inflation data comes out this week?
The Fed’s Beige Book is released Wednesday, October 14, followed by the September Producer Price Index and September retail sales on Thursday, October 15. Fed Chair Kevin Warsh also speaks in Thailand on October 15.
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