CPI Preview: Why does it matter?

Rising rents are expected to represent a considerable factor behind the jump in September consumer prices. The awaited consumer price index will be released Thursday at 8:30 a.m. ET, and it will attract full attention from investors as a key input data ahead of next Fed meeting on November 1 and 2.

The market focus on the CPI is intense since it is considered to be a major input for the Fed. Moreover, last week’s solid September jobs report gave little hope to investors that the Fed could slow its rate hikes.

Excluding food and energy, CPI is expected to have risen 0.4%, down from 0.6% in August. But the annual rate of core inflation at 6.5% is expected to surpass the 6.3% in August, due to base effects.

Fueled by rising rent costs, consumer inflation is expected to have remained hot in September but slightly lower than August’s pace. The CPI will also be key for Fed regarding policymakers’ endeavor to keep inflation under control, with a three-quarter point rate hike.

Economists expect the CPI rose 0.3% in September, up from 0.1% in August, according to Dow Jones. That would mean inflation was running at an annual pace of 8.1%, down from 8.3%.

The core inflation is going to be higher, so it is still an inflation that has not peaked yet in many ways. There are still more risks of supply side shocks. Energy costs are expected to decline again but could rise later on, after OPEC+ said it would trim crude oil production by 2 million barrels a day. In coming months, she also expects to see some impact from Hurricane Ian.

The hurricane could trigger notable impact as Floridians replace damaged cars and repair or rebuild homes. That could drive up the costs of building materials, new and used car prices, as well as the cost of everything from appliances to home furnishings.

The Bank of America expects core goods were up by 0.2% in September, down from the 0.5% gain in August. Services are expected to rise by 0.5%, driven by shelter costs, which are 40% of CPI. Bank of America economists expect food prices to be up 0.7%, slightly slower than the 0.8% gain in August. After falling 5% in August, energy costs are expected to decline by another 3.5%.

Goldman Sachs economists expect rent inflation to remain high in September, running at 0.7% month-over-month. That level is consistent with the three-month trend.

The Fed has raised the fed funds target rate range to 3% to 3.25% since March, when it was zero to 0.25%. Economists expect policymakers could raise rates by at least another full percentage point before the end of the year.

If CPI reading is strong, the markets will sell off. Stocks will suffer. If it comes in a little lower, policymakers will say the labour market is still robust, they are going to hike 75 basis points. Inflation has proven to be difficult to forecast. Hotter-than-expected inflation reports from December, January and August spurred large stock market declines when they were released. However, improving reports from February, June and July had the opposite effect.