CPI and PPI Expected to Run Hot Again in September Reports

The Week Ahead

CPI is expected to run hot again in September on rebounding gasoline prices. Higher fuel costs are likely to lift airfares, too, part of core CPI. Other components of core CPI are expected to run cooler. New and used vehicle prices are likely to be modestly lower as dealers discount to move inventories. Prices of most other durable consumer goods are expected to change little. Electronics may be an exception, if manufacturers pass on higher semiconductor prices to retailers and ultimately consumers. Shelter inflation could slow again, reflecting the lagged pass-through of tame increases of house prices and rents in 2025 and early 2026.

PPI inflation was likely even higher than CPI, since diesel rose more than gas in September and is more important for producer costs. Transportation and warehousing charges likely jumped as well, boosting core PPI. Healthcare service prices were likely tame due to residual seasonality; their increases tend to be largest in the first month of the quarter as providers reset prices.

If the inflation reports match expectations, they will likely reinforce financial markets’ view that the Federal Reserve is set to hold interest rates steady at the late October meeting. The minutes of the prior meeting indicated that most FOMC members leaned toward an additional rate hike (i.e., one, not multiple) before year-end when they met in September. Several Fed policymakers made speeches after the decision where they tamped down on talk that the Fed could make a back-to-back hike in October.

Last Week in Review

Businesses reported stronger input price pressures in September as energy prices rebounded, according to the Institute for Supply Management’s Purchasing Managers Indexes. The Services PMI Prices Paid sub-index reached the highest since mid-2022, while Manufacturers’ Prices Paid weren’t far behind. Both PMIs reported solid growth of activity. The Employment sub-indexes reported moderate hiring in manufacturing and little change in payrolls of service-providing businesses, broadly consistent with the breakdown of job growth in the BLS’ jobs report.

Initial and continued jobless claims held at very low levels in the latest weekly releases for late September and early October, pulling their four-week averages down to the lowest since 2022 or 2023. Other recent jobs data demonstrate that slow hiring is keeping a lid on wage gains as workers struggle to find better-paying jobs, and also making it relatively difficult for graduates to find their first footholds in the workforce. But workers who are already employed are enjoying unusually strong job security. The last time initial or continued claims trended this low, the unemployment rate was only 3.6%—near a multidecade low.