US inflation probably moderated at the end of the third quarter, reassuring a Fed that’s shifting more of its policy focus toward shielding the labor market.
The consumer price index is seen rising 0.1% in September, its smallest gain in three months. Compared with a year earlier, the CPI probably rose 2.3%, the sixth-straight slowdown and the tamest since early 2021. The gauge excluding the volatile food and energy categories, which provides a better view of underlying inflation, is projected to rise 0.2% from a month earlier and 3.2% from September 2023.
“The Fed’s decision to shift its focus from inflation to the labor market means that inflation data, including tomorrow’s CPI, is likely to become less market-moving than it had been,” said Matthew Weller at Forex.com and City Index. “Despite that logical observation, this month’s CPI report may still drive market volatility coming on the back of Friday’s stellar jobs report, a reading that hints at the potential for renewed upside risks to inflation.”
A survey conducted by 22V Research shows that 42% of investors expect the market reaction to CPI to be “mixed/negligible,” 32% said “risk-off” and only 25% think “risk-on.”
“There is optimism about inflation generally,” said Dennis DeBusschere, founder of 22V. He also noted that the share of investors expecting a recession has fallen while the percentage of those who believe financial conditions need to tighten hit the highest since June.