US CPI: Headline index will likely increase 0.7% in September – Wells Fargo

The recent gasoline price surge and more aggressive price discounting among grocers will impact US September’s CPI and the headline index will likely increase 0.7%, lifting the annual change to 2.4% from 1.9% in August, according to Michael Gregory, Deputy Chief Economist at BMO Capital Markets.

Key Quotes

“Excluding food and energy, the index should increase 0.2%, raising the core inflation rate a tenth to 1.8% y/y. This will be the first, and very welcome, advance since the start of the year, supporting the conjecture that idiosyncratic factors are mostly (if not totally) responsible for this year’s unnerving slide in core inflation. This is also supported by the shorter-term trends.”

“The three-month change should be 2.3% annualized in September, up from 1.9% in August and a very rare flat reading in May. The six-month change should be 1.6%, up from 1.0% in August, which is a relatively large jump as March’s extremely rare outright decline in the core CPI washes out. These results should make the Fed feel more comfortable about inflation performance, thus keeping a December rate hike on the policy table.”