US CPI previews

As we await the big one. Here is Goldman.

We expect a 0.41% increase in the core CPI in September, corresponding to a 0.2pp increase in the year-over-year rate to 6.50%, and expect a 0.26% increase in headline CPI, corresponding to a 0.2pp decline in the year-over-year rate to8.10%.

We highlight three key component-level trends this month. First, timely auction data suggests that used car prices likely fell about 2.5% in September, while reduced dealer incentives suggest new car prices likely rose about 1%. Second, we expect education prices to increase 0.5% this month, as schools pass through higher costs to consumer prices at the start of the new school year.Third, we expect rents to increase by 0.7% as the official index continues to catch up to the price levels implied by alternative web-based measures of asking rents on new leases.

Going forward, we expect monthly core CPI inflation to remain in the 0.3-0.4%range for the next couple of months before edging down to 0.2-0.3% next year. We forecast year-over-year core CPI inflation of 6.0% in December 2022, 2.9% in December 2023, and 2.6% in December 2024. Our forecast reflects a negative swing in health insurance prices that will be incorporated in the October CPIreport and a larger slowdown in goods than in services inflation next year.

Deutsche

Both headline and core PCE prices reversed last month’s decline and reaccelerated in August, as inflationary pressures remain broad-based and elevated. Housing, a persistent component taking about 20% share in core PCE, surged again and increased at the highest monthly pace since the 1990s. Updating our suite of statistical models for the latest August PCE inflation print, we find that our underlying inflation measures inched a bit higher and continue to hover above 3%. Our monthly median estimate ticked up 2bps to 3.1%, and the mean estimate increased 8bps to 3.4%. Both measures remain at historically high levels since our gauge began in the early 1990s.

The alarmingly high levels of underlying inflation are the main reason Fed officials have remained resolute in their unconditional commitment to achieve price stability. Given that a few Fed officials, including Chair Powell, have argued for positive real rates across the curve, elevated underlying inflation supports our view that a terminal rate close to 5% early next year is warranted. We remain of the view that policy-tightening of the magnitude that we envision will ultimately engender a moderate recession around the middle of next year, thus loosening the labor market and allowing for inflation to move back closer to the target. Indeed, the Fed’s own forecasts are moving in this direction per the latest SEP.

JPM

The September FOMC minutes released today kept a hawkish tone as expected. Echoing earlier sentiments, the minutes signaled that the Committee will keep hiking the policy rate, and then maintain a restrictive stance, in an effort to bring inflation down. Many participants stressed that the cost of too little action likely outweighed the costs of taking too much action, with a couple echoing comments in recent speeches that highlighted dangers from ending a tightening cycle prematurely. That said, plans to slow the path of rate increases at some future date remain intact and several participants noted the importance of calibrating future tightening to mitigate “the risk of significant adverse effects on the economic outlook.” We continue to look for a 75bp rate hike at the November FOMC meeting.

The US PPI came in stronger than expected with a 0.4% rise in September, but the details were mixed. We have emphasized our expectation that fading supply chain dislocations and a pivot toward services should result in a meaningful disinflation in core goods prices. In line with that call, PPI core goods were essentially unchanged on the month—their softest reading since May 2020. That dynamic was offset by upside surprises in PPI food and energy prices. Ahead of tomorrow’s CPI report, where we expect a solid 0.45%m/m rise in core prices, we are tracking a 0.23%m/m (4.9%oya) rise in September core PCE.

From a global perspective, headline inflation looks to have peaked outside of Europe and is now slowing as we have anticipated. We also forecast a gradual deceleration in core inflation as well, although September releases thus far look to be running slightly above expectations on net. Based on a combination of available September CPI data and our forecasts, the %3m rate in global core inflation ticked up to a 4.9%ar in September from a 4.8%ar in August. Monthly gains in core prices are still strong by historical standards and are expected to remain above central bank comfort zones into early next year.

UBS

Next Thursday’s CPI release is poised to show headline prices rose faster in September than in the prior couple of months. Nonetheless, the pace of increase, projected to be 21bp, is still fairly moderate and would be the third smallest gain since the surge in inflation began 20 months ago. The faster pick up in September than in the prior couple of month is the result of a smaller decline in gasoline prices. Outside of gasoline prices continue to increase strongly. In particular, scanner data from grocery stores suggests that food prices accelerated to well above a 1% increase following a dip below that pace in August. We also expect strong price increases for energy services, restaurant meals (food away from home), and core goods and services. Twelve-month inflation is forecast to slip to 8.0% in September from 8.3% in August and 9.1% at its June peak. Our headline CPI projection is about in line with the current 23bp Bloomberg consensus estimate, but well above the 5bp projection from our Nowcasting models. Our forecast for the September NSA CPI level, at 296.343, is about 10bp lower than CPI swaps fixings as of Wednesday morning.

Our projected 33bp core CPI increase in September is a notable slowing from the 57bp increase in August, but still above the 31bp increase in July. The slowdown from August is fairly narrow with more than ½ of the step-down resulting from a faster decline in used vehicle prices. Among the other components, owners’ equivalent and tenants’ rent are both projected to continue to surge, albeit slightly less than in August; medical care services prices are projected to see a final strong month in September before a swing in CPI health insurance begins to hold them down over the next year; and core goods outside of transportation are expected to slow slightly as the weakness in import prices in recent months starts to show through to retail prices. The projected September increase would represent some easing in the inflation trend and be below those seen in 9 of the past 11 months. That said, our projected 33bp increase would still equal a 4% annualized pace and 12-month core CPI inflation would rise from 6.3% in August to 6.4% in September, just slightly below the 6.5% peak core CPI inflation rate in March.

Looking ahead to the October data released in November we expect a stronger increase in headline inflation as gasoline prices swing from a negative to a positive contribution to inflation. On the other hand, core inflation is expected to slow further in October and November as used vehicle prices continue to decline, CPI health insurance prices begin to drop substantially, and price increases for new cars and other core goods ease amid higher vehicle production since March, import price softness, tumbling transportation costs in recent months, and ongoing slipping supplier delivery times, among other weakening indicators.

And Fed’s own nowcasting model.