September CPI Report Forecast to Show Inflation Trends Moderating

The Consumer Price Index report for September 2023 is forecast to show a continued slowdown in inflation growth, led in part by further declines in used car prices.

This continues the reversal of a trend that helped fuel the post-pandemic inflation surge. And while higher oil and gas prices could put upward pressure on prices in coming months, analysts will be watching September’s report - due to be released Thursday morning at 8:30 a.m. eastern time - closely for improvement in core inflation, which excludes volatile food and energy prices.

“Last month’s CPI print was a bit stronger than we anticipated, though the downward trend in core inflation persisted,” says Andrew Patterson, senior economist at Vanguard. “We would hope for that to continue.”

Last week’s September jobs report, which was much healthier than expected, has raised the stakes for the inflation data. While the bond futures markets currently reflect predictions that the Federal Reserve will keep interest rates steady at its meeting which ends Nov. 1, a hotter-than-forecast CPI report could tip the scale toward another rate hike. But the consensus currently paints a picture of inflation that’s broadly heading in the direction the Fed wants.

According to FactSet, the September CPI report is expected to show a 3.6% increase in inflation compared to a year ago, and a 0.3% increase from August. On both fronts, that would be an improvement from the inflation reading last month, when the CPI rose 3.7% year over year and 0.6% from the previous month. It would also mark a significant improvement from the June 2022 peak reading of 9.1% on an annual basis, though higher than the reading of 3.0% in June 2023.

Core CPI is expected to show an annual increase of 4.1% in September (which would be its lowest reading since September 2021) and a monthly increase of 0.3%.

Morningstar senior U.S. economist Preston Caldwell says a monthly core CPI reading between 0.2% and 0.3% would indicate inflation is continuing to normalize.

September CPI Report Forecast Highlights

• The CPI is forecast to rise 0.3% in September after increasing by 0.6% in August.
• Core CPI is forecast to rise 0.3% in September after increasing by the same amount in August.
• The CPI year over year is forecast to rise 3.6% in September after rising 3.7% in August.
• Core CPI year over year is forecast to rise 4.1% in September after rising 4.3% in August.

Keep an Eye On Goods and Services

While CPI data in line with economist forecasts would be a positive sign for the economy overall, investors should be prepared to look beyond Thursday’s headline numbers.

“As with most macro data reports these days, nuance is going to matter,” Patterson says. He’ll be watching for goods prices to continue to decline and service price growth to continue to soften.

Bank of America analysts expect a 2% drop in used car prices to be the primary driver of a decline in core goods inflation in September, and for prices on the services side to rise thanks to a 0.4% increase in prices in the shelter category, which includes rent prices and utility payments.

Rising energy prices, which pushed up August’s inflation reading, could also continue to drive overall prices higher in the months ahead. Patterson says he’ll be keeping a close eye on this in the months ahead.

The recent conflict in Israel may put pressure on global oil prices, but any such effects will not show up in September’s inflation reading.

Another Interest Rate Hike is Still Possible

The Federal Reserve has repeatedly indicated that it will remain “data dependent” for future decisions about the path of interest rates. While price growth has cooled significantly over the past year, there’s still room for the central bank to hike interest rates again if it believes inflation is still too high. That’s why investors will be watching Thursday’s data so closely.

“Should the print come in as we expect or above our expectations,” Bank of America analysts wrote last week, “it would keep a November hike in play.”