Consumer Price Growth Expected to Decelerate in September

Consumer price growth is expected to have decelerated in September, primarily due to a drop in gasoline prices. However, core inflation, which excludes food and energy prices, has remained strong and is anticipated to have fallen by a smaller margin. The Bureau of Labor Statistics will release the consumer price index reading for October on November 14th.

Slowdown in Inflation Projected for October

According to economists surveyed by FactSet, the October CPI report is expected to reveal a slowdown in inflation to 3.3% on a year-over-year basis, down from the 3.7% rate recorded in September. On a month-over-month basis, economists predict that headline inflation grew by only 0.1%, below the 0.4% pace recorded in September.

Energy Prices Contribute to Moderating Inflation

The forecast for moderating inflation largely stems from the decline in energy prices observed in October. With gasoline prices falling from an average of $3.96 a gallon nationwide in September to $3.74 last month, according to the Department of Energy, experts believe this will drive down the overall inflation rate. Matthew Bush, U.S. economist at Guggenheim Investments, states, "Given we saw a pretty meaningful decline in gas prices in October, that should drive a pretty weak headline number."

Commodities Prices Could Further Impact Food-Price Inflation

Recent decreases in commodities prices may also affect food-price inflation in the upcoming report. The CRB's Foodstuff index has dropped nearly 10% from its peak in July, according to William Blair's macro analyst, Richard de Chazal.

Focus on Core CPI

While expectations for the headline inflation rate are relatively optimistic, attention is also being placed on core CPI as a more reliable indicator of inflation growth. FactSet predicts that core CPI remained steady in October, following a measurement of 4.1% year over year in September. Economists anticipate a month-to-month growth rate consistent with the previous month's figure of 0.4%.

September's Core CPI Shows Smallest Annual Increase in Two Years

September's core CPI readings reflected the lowest annual increase in two years. This noteworthy development indicates that core inflation has remained relatively stable.

Matthew Bush highlights that Tuesday's core reading may yield unexpected results, stating that certain technical factors could potentially push up the inflation rate compared to September. There is even a possibility that core CPI could exceed consensus expectations.

Health Insurance Costs to Impact Inflation

The Bureau of Labor Statistics is planning an update to the methodology used for calculating health insurance costs. Starting from October 2023, this change will reduce volatility in annual data and decrease lag in available information by incorporating semiannual financial data.

According to experts, this change is likely to transform healthcare from a drag on inflation to a contributor. The "supercore" rate, which measures core services inflation excluding housing, is expected to increase as a result. The Federal Reserve has been closely monitoring this measure due to concerns about services inflation.

Additionally, some residual seasonality-adjustment issues that affected inflation readings over the summer are expected to push up inflation readings this fall. However, analysts caution that these factors do not accurately represent the trend in true inflation. Nevertheless, they have the potential to further raise concerns in the market and among policymakers.

Despite the possibility of a steady or rising core inflation reading, experts believe that the Federal Reserve is unlikely to resume raising interest rates. The Fed's cautious stance, combined with the weak October jobs report and ongoing delays in the effects of monetary policy tightening, suggest that rate hikes in the current policy cycle are unlikely.

Even if tomorrow's CPI report delivers a slight upside surprise, it would require substantial evidence for the Fed to consider hiking rates in December.

The CPI report will be released at 8:30 a.m. ET.