14 Institutions Weigh In on US Inflation: Core Index Is the Fed's Key Test

US consumer price index report for September is due Wednesday at 16:00 Tehran time. The median forecast of 14 forecasters points to a 0.6% monthly rise in headline inflation and an annual rate of 3.6%. Core inflation is projected at 0.22% monthly. Market reaction and assessment of the interest rate path will depend on the outcome of this […]

The US consumer price index report for September is scheduled to be published on Wednesday at 16:00 Iran time.

The median estimate of 14 forecasters is a monthly growth of 0.6 percent of total inflation and an annual rate of 3.6 percent.

Monthly core inflation is expected to be 0.22%; The market reaction and evaluation of the interest rate path depends on the result of this index.

Rising gasoline prices are likely to be the main driver of US headline inflation in September; But the Fed's next policy path may depend more than anything else on whether core inflation remains subdued, as the market expects.

The American consumer price index for September is scheduled to be released on Wednesday at 12:30 GMT, equivalent to 16:00 Iran time. According to a Wall Street Journal survey of 14 forecasters, the median estimate is for headline inflation to have increased by about 0.6 percent this month; Compared to the growth of 0.4% in August. Based on this, the annual rate of total inflation will reach from 3.4 to 3.6 percent.

Core inflation, which excludes food and energy prices, is forecast at 0.22 percent for September; Less than the 0.29% growth in August. The annual core inflation rate is expected to remain at 2.4 percent.

The expected increase in headline inflation is mainly attributable to gasoline. The average price of gas at US stations exceeded $4.30 per gallon in September; A record for this month, which was recorded at the same time as the price of crude oil continued to be high due to the war related to Iran. Headline inflation forecasts are close; Morgan Stanley has the highest monthly estimate, and JPMorgan's estimate is slightly lower than most forecasts.

Deutsche Bank has the lowest estimate with a growth of 0.16%; Citigroup and JPMorgan both forecast 0.18 percent growth. In contrast, Goldman Sachs, Barclays and Morgan Stanley expect a growth of 0.24 percent. That difference could affect the annual rate: About half of forecasters, including Bank of America, Goldman Sachs, Barclays and Morgan Stanley, expect annual core inflation to reach 2.5 percent; Others, including Citigroup, Deutsche Bank and JPMorgan, expect the rate to remain at 2.4 percent.

Part of the expected decrease in the monthly growth of core inflation may be related to the effect of a temporary factor. Barclays and Morgan Stanley said an unusual increase in the price of mobile services in August added about 0.1 percentage point to the core inflation figure for the month, and some of the increase is expected to be offset in September.

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The release of the data comes as Federal Reserve officials debate whether inflationary pressures are escalating. Richmond Federal Reserve President Tom Barkin said on Tuesday that inflation has been more persistent than expected. Susan Collins, president of the Boston Federal Reserve, also said she was looking at how pervasive the price pressures would be. In contrast, New York Fed President John Williams believes the economy is not overheated. A strong result of core inflation can strengthen the first group's view; A weaker figure would also be more consistent with Williams' view that pressures are caused by specific shocks.

If core inflation registers at the upper end of the forecast range, around 0.24 percent or more, it could support officials' warnings that inflationary pressures are spreading. Such an outcome may bolster expectations for a December interest rate hike, boosting short-term bond yields and the dollar. Conversely, a figure near the floor of forecasts, around 0.16 to 0.18 percent, could bolster Williams' view and reduce expectations for more tightening by the Federal Reserve by the end of the year.

There is another point in the interpretation of the data: the core inflation of the consumer price index has been lower than the core inflation of the personal consumption expenditure index in recent months; The benchmark that the Federal Reserve prefers and its rate was close to 3% in August. Therefore, the soft core CPI inflation figure may present a more favorable picture than the indicator that the central bank actually focuses on.

The "Beige Book" report of the Federal Reserve will also be published on Wednesday and before the policy meeting on October 27 and 28. Markets currently expect the central bank to keep interest rates unchanged at that meeting and then raise them in December.

Considering that most of the jump in overall energy-related inflation is included in prices, the market reaction will probably depend more on core inflation than on the overall figure. For the oil market, this report reminds us that the price of crude oil has a direct effect on inflation in the United States. If escalation in the Persian Gulf raises prices again, the effect could be reflected in next month's headline inflation figure, keeping energy at the center of the Fed's discussions.