US inflation is expected to have picked up in September, according to economists surveyed by Bloomberg. They forecast that consumer prices rose 0.6% from August, pushing the annual inflation rate to 3.6%. The data, due out Wednesday at 8:30 am ET, will be closely watched by investors and policymakers alike.
What the numbers show
The monthly increase would be a notable acceleration from August's 0.3% rise. The jump is largely attributed to higher gasoline and food prices, which have been volatile in recent months. However, not all components are moving in the same direction. Rent-related costs, which have been a major driver of inflation over the past year, are expected to cool.
Specifically, the report is expected to show a softer core CPI reading of 0.2% for the month, down from 0.3% in August. Core CPI excludes food and energy, giving a clearer picture of underlying price pressures. A lower core reading suggests that the recent spike in headline inflation may be temporary, driven by volatile energy and food prices rather than broad-based demand.
Why rent matters
The rent component is a critical part of the CPI calculation. It includes both actual rents paid by tenants and "owners' equivalent rent," which estimates what homeowners would pay to rent their own homes. Together, these two measures account for nearly one-third of the entire CPI index. That means even small changes in rent can have a big impact on the overall inflation figure.
Scotiabank, a Canadian bank, is among those expecting gasoline and food prices to reheat in September, while rent-related inflation eases. If that plays out, it would be a welcome sign for the Federal Reserve, which has been trying to bring inflation down to its 2% target. A cooling rental market would suggest that the housing-driven inflation pressures are finally starting to fade.
What it means for investors
For everyday investors, the CPI report is more than just a number. It directly influences the Federal Reserve's interest rate decisions. Higher inflation typically leads to higher interest rates, which can weigh on stock prices, especially for growth companies. Conversely, signs of cooling inflation could open the door to rate cuts, which tend to boost markets.
This report comes at a time when markets are already sensitive to inflation data. Global markets have been cautious ahead of the release, with investors waiting to see if the data confirms the expected pickup. The reaction could set the tone for trading in the coming days.
If the headline number comes in as expected, it may not cause major alarm, given the softer core reading. But if inflation surprises to the upside, it could reignite fears of further rate hikes. On the other hand, a cooler-than-expected report could boost hopes that the Fed is done tightening.
Broader context
The US economy has been navigating a period of high inflation and rising interest rates. The Fed has raised its benchmark rate to a range of 5.25%-5.50%, the highest in over two decades. While inflation has come down from its peak of over 9% in mid-2022, it remains above the Fed's 2% target.
Recent data has been mixed. Small business optimism has slipped, and big banks have seen a slowdown in deal-making due to bond market volatility. These signs of cooling could give the Fed reason to pause, but sticky inflation could force it to act again.
Other central banks are facing similar dilemmas. The Bank of Korea held rates steady as inflation remains above target, and Poland's central bank has hinted at a possible hike. The global picture is one of persistent price pressures, even as growth slows.
Looking ahead
Investors will be parsing the CPI report for clues about the Fed's next move. The central bank has said it will be data-dependent, meaning each economic release could shift expectations. The September jobs report, due out later this week, will also be important.
For now, the consensus is that inflation is still too high for comfort, but the trend is in the right direction. The expected cooling in rent is a positive sign, but energy prices remain a wildcard. If oil prices continue to climb, they could keep headline inflation elevated for longer.
In the meantime, investors should be prepared for volatility around the release. The CPI report is one of the most market-moving events on the calendar, and Wednesday's data could trigger significant swings in stocks, bonds, and the dollar.
Bottom line
September's CPI report is likely to show a pickup in inflation, driven by gas and food prices, but with underlying pressures easing. For investors, the key takeaway is that the Fed's path remains uncertain. While a softer core reading could support the case for a pause, a hot headline number could keep rate hikes on the table. As always, diversification and a long-term perspective are the best defenses against market volatility.
