The US Consumer Price Index (CPI) report, due on Wednesday, October 15, is expected to show that inflation increased in September as energy prices rose. The data will help investors understand how prices are changing and what the Federal Reserve may do with interest rates.
Why inflation data matters for the Fed
Economists surveyed by Bloomberg expect annual US inflation to increase to 3.6% in September, up from 3.4% in August. Consumer prices are forecast to rise 0.6% in September compared with August. This would be faster than the 0.4% monthly increase recorded in August. If core inflation comes in around economists’ expectations, the Federal Reserve may have enough reason to leave interest rates unchanged at its October 28 meeting. The September jobs report showed that the US added only 29,000 jobs, while the unemployment rate increased.
Because it excludes food and energy prices, which can be volatile, core inflation is an important measure for Federal Reserve officials. The September reading will help policymakers assess whether underlying price pressures are easing or remaining high. Policymakers will also consider other economic data before making their decision. This relatively weak employment data is another factor that could influence the Federal Reserve’s interest rate decision. The report will help show whether inflation is moving closer to the Federal Reserve’s goal or remains too high. If core inflation matches expectations, the Fed may keep rates unchanged. However, a stronger-than-expected reading could increase pressure on policymakers to consider another rate hike.
Jake Krimmel, senior economist at Realtor.com, said the September CPI report is expected to be relatively straightforward. However, he warned that the absence of a major surprise does not mean the inflation problem has been solved, as price pressures remain elevated, according to Yahoo Finance.
This would mean that consumer prices are rising faster than they did a year earlier.
Gasoline prices are expected to be a major reason for the rise in US inflation in September. When fuel prices go up, travelling becomes more expensive. It also costs more to make and deliver goods. It is expected to rise slightly in September. Recent comments from Federal Reserve officials have been mixed, particularly over when rates might need to change again. Their comments reflect the challenge of bringing inflation down without putting too much pressure on the economy. This expectation reflects the latest economic data and comments from central bank officials. Economists warn that core inflation could rise more than expected. Higher costs for services and other goods could prevent inflation from slowing, making it harder for the Federal Reserve to bring price increases under control. Rising costs for air travel, hotels and auto parts are among the factors economists are watching. If these costs increase faster than expected, they could push core inflation higher in September. Diesel fuel is widely used to transport goods. A sharp increase in diesel prices can make shipping and distribution more expensive, potentially pushing up prices for businesses and consumers. If core inflation remains elevated for a second consecutive month, an interest rate hike in October could become a possibility again. This would depend on the inflation figures and the Federal Reserve’s wider assessment of the economy.
The average price of gasoline in the US reached a record $4.33 per gallon last month, according to the American Automobile Association (AAA). This was nearly 50 cents higher than the previous monthly record set in 2023. Economists surveyed by Bloomberg expect the annual core inflation rate to increase to 2.5% in September, up from 2.4% in August. Core consumer prices are also expected to rise by 0.2% from August to September. This would be lower than the higher-than-expected 0.3% increase recorded in August. Traders currently see a 76% chance that the Federal Reserve will leave interest rates unchanged at its October meeting. Bank of America economist Stephen Juneau said a monthly core CPI increase of 0.3% would likely bring back speculation that the Federal Reserve may need to continue raising interest rates in October. Such a reading would be higher than the 0.2% increase currently expected, according to Yahoo Finance.
Because they can change quickly, core inflation does not include food and energy prices.
Economists at RBC, led by Mike Reid, said there is still a limited chance of a major slowdown in core inflation. They also warned that September’s CPI report may not fully reflect the risks that could push inflation higher in the coming months, according to Yahoo Finance.
