Markets

Inflation Gauge Should Be Hot Again in September and for the Months Ahead

Mark Makela | Reuters
  • The consumer price index is expected to remain hot in September and could run hot for months to come.
  • Economists say the recent surge in energy prices is one of the components, along with rising rents, that makes it possible CPI could stay elevated.
  • Economists polled by Dow Jones expect the gauge to rise 0.3% in September, or 5.3% on a year-over-year basis, the same as August.

Consumer inflation is expected to have risen in September at the same rapid pace as August, and economists say there will likely be more hot numbers to follow.

Economists polled by Dow Jones expect to see a rise of 0.3% month over month, or a 5.3% annualized rate when the consumer price index is released Wednesday at 8:30 a.m. ET. Excluding energy and food, the CPI is expected to be up 0.3% from August or 4% from a year ago.

By now, some economists had expected inflation to have peaked, but supply chain pressures, rising energy prices and gains in rent and medical costs could make it more persistent.

"I think it could come in hot," Grant Thornton chief economist Diane Swonk said. "It looks like we could get more broad-based inflation. There is supply shock there. You start getting spillover of energy prices and other things."

The global supply chain has been choked since the economy began to reopen. Goods are either arriving late or not at all, leaving American businesses short of everything from sneakers to semiconductors.

The Federal Reserve's view has been that the inflation surge this spring and summer has to do with temporary factors, such as supply chain breakdowns. But more recently, some officials have said inflation could be more of a risk.

The fear in the market is that the higher inflation prints are a precursor to a period of rising prices that will force the Fed to raise interest rates sooner than expected. In their latest forecast, about half of Fed officials expect a rate hike next year. The central bank is also expected to announce soon it will begin tapering its bond purchases.

Fed officials see inflation next year running at a pace of 2.3%. That is up from the 1.8% that was in their forecast a year ago, before supply chains were a big factor. The Fed watches the core personal consumption expenditures inflation data, rather than the CPI.

The International Monetary Fund on Tuesday also said it sees an impact from snarled supply chains. In its World Economic Outlook, the IMF said it expects global gross domestic product to grow by 5.9% this year, That's down from its July estimate by 0.1 percentage points. The IMF blamed Covid-19 and supply chain issues.

"The issue is it's not clear any more that we've hit the peak in the hot numbers," Swonk said. "What we care about is not only does it cool, but does it cool fast enough to not be worrisome and a problem for the Fed, and that's not clear anymore given the underlying inflation pressure coming in shelter and medical costs."

Natixis chief economist for the Americas Joe LaVorgna said inflation will probably be around for months to come. "If you get a better CPI report, you're not getting an all-clear sign," he said.

Two persistent problems make it likely inflation will continue to rise over the next several months, he said. One reason is the supply chain disruptions have resulted in very low inventories for some goods, and the other is the higher trajectory in energy prices.

LaVorgna said the surge in oil and natural gas are relatively new factors that have changed the inflation outlook. Oil is now up more than 65% year to date, and natural gas has more than doubled.

Gasoline prices have surged recently and are up more than $1 per gallon of unleaded gas over the past year, gaining 7 cents per gallon nationally in just the last week to $3.27, according to AAA.

"If you have a cold winter, we're going to see higher prices and what's going to happen on inflation?" he said.

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