US CPI Data Will Likely Show Further Disinflation in September

Economists anticipate that key measures of inflation decelerated in September, in spite of price pressures in some categories of goods including used cars.

(Bloomberg) — Economists anticipate that key measures of inflation decelerated in September, in spite of price pressures in some categories of goods including used cars.

The consumer price index and the so-called core gauge that excludes food and energy likely rose 0.1% and 0.2%, respectively, last month, according to the median estimates in a Bloomberg survey of economists. In both cases, the monthly increases would be a step-down from August.

On an annual basis, the overall measure is seen increasing 2.3%, marking the slowest pace since early 2021. The core metric is expected to show a 3.2% annual increase for a second month.

If the figures come in line with the consensus, they are unlikely to weigh much on the Federal Reserve’s next policy decision in November.

“Even if core CPI surprises to the upside, we don’t think the September report will change the FOMC’s view that inflation is trending downward,” Anna Wong, chief US economist for Bloomberg Economics, wrote in a note Thursday. She expects a 25-basis-point interest rate cut in November to follow the half-point cut by the Federal Open Market Committee last month. 

Here are more details on what to expect in the CPI report from Bureau of Labor Statistics due Thursday: 

Goods Prices

Most forecasters see a pickup in the prices of used cars after several months of declines. That would put pressure on core goods, which have posted price decreases in 14 of the past 15 months.

Going forward, higher container shipping prices are likely to impact that category, according to economists at Pantheon Macroeconomics.

“Shipping costs feed through to the CPI with a lag — at least six months,” Samuel Tombs and Oliver Allen wrote Tuesday. “Over the coming months, therefore, the impact of the near-doubling of container freight rates at the start of this year probably will trickle through to CPI core goods prices.”

PCE Impact

An increase in the prices of used vehicles would be bad news for consumers — especially combined with persistently high inflation in car insurance. But it wouldn’t have a major impact on the Fed’s favored inflation metric, the personal consumption expenditures price index. That gauge has been trending closer to the Fed’s 2% target.

“Used cars carry a lower weight in core PCE and, therefore, their acceleration has a lower impact on PCE,” Morgan Stanley economists led by Diego Anzoategui wrote last week. “Used cars represent roughly 2% of the CPI basket, whereas they are 1.2% of the PCE basket.”

Strong Wages

Economists say another upside risk to inflation stems from wages, the main engine behind consumer spending. Annual real earnings rose by the most in a year in August. There could be more pressure ahead after nearly 50,000 dockworkers negotiated a sizable pay increase and with 33,000 Boeing Co. currently on strike bargaining a deal. 

“Continued strength in wages would be a clear upside risk for inflation, especially in services sectors like health care,” Citigroup Inc. economists Veronica Clark and Andrew Hollenhorst wrote in a note Tuesday.