Markets have been starved of key US economic data for almost a month now but the wait is finally over. And it doesn’t come any bigger than the US CPI data release. This will be for the month of September and is the main thing on the agenda to end the week. Given that it is the only major release this month, the focus, attention and scrutiny on the data is going to be much more amplified compared to anything else before.
The reason for this release during the government shutdown? Well, the BLS is making an exception on the grounds of having to calculate social security payments. So, what can we expect?
For one, this is arguably possibly the last piece of economic data that might not be significantly impacted by the government shutdown. That being said, there will still be some scrutiny on data quality surely even if not entirely justified.
The estimates indicate that core annual inflation is expected to hold at 3.1%, with headline annual inflation seen picking up to 3.1% – up from 2.9% in August. On a monthly basis, core prices are expected to increase by 0.3% with headline prices up 0.4%.
The couple of things to watch will be the same as before. The first one is to scrutinise for any further impact from tariffs passthrough. Core goods inflation rose 0.28% in August and the estimate this time around is for an increase of 0.35%. A notable beat of +0.4% could mark the highest reading in said category since May 2023 and raise some eyebrows at least.
However, the impact there should be offset by softer core services inflation – which is estimated at 0.31%, down from 0.35% in August. Softer rent/shelter prices compared to the month before is expected to help see services inflation moderate a little in September.
The expectation is that even with stronger core prices in suggesting further evidence of tariffs passthrough, it is to be offset by slowing services inflation. And for some analysts, they are still expecting tariffs passthrough to be evident but to a lesser extent i.e. 0.29% (Deutsche), 0.25% (Wells Fargo). This will still be more than double the 0.12% average of the prior 12 months though.
But overall, the signs seem to be pointing towards the notion that the impact from tariffs has been rather manageable with prices continuing to hold more stable despite that. And with a softer labour market weighing on the balance of scales, it still supports the narrative that the Fed can cut in October and December this year.
Just a little caveat though that after the report this week, there will be data quality concerns on the reliability of the next few releases next month (October report) and in December (November report). And it comes at a crucially sensitive time with some analysts expecting this period to be when stronger evidence of tariff pressures to manifest
