US September CPI data may trigger market Fluctuation

Recently, the U.S. stock market has experienced significant fluctuations due to inflation data. Every 0.1% change in the core CPI month-on-month data can have a significant impact on the market. The U.S. CPI data for September, which is set to be released this Thursday, is expected to attract market attention once again.

The Importance of CPI Data

Currently, the Federal Reserve is doing everything it can to stabilize prices, even at the cost of sacrificing the job market to curb inflation. This highlights the critical nature of every piece of inflation data.

CPI, as the main indicator for measuring actual inflation, directly reflects the situation of rising prices. Although the Personal Consumption Expenditures Index ( PCE ) is the inflation indicator favored by the Federal Reserve, due to its delayed release, CPI has become the primary reference for assessing price levels.

Among the various indicators of CPI, core CPI is given more importance than overall inflation data. Although global political circles are quite concerned about fluctuations in fuel prices, the market and the Federal Reserve are more focused on potential inflation trends. Given that the Federal Reserve began raising interest rates in March of this year, the month-on-month changes in CPI are more valuable for reference than the year-on-year changes.

The trend of the Euro/US Dollar since 2021 also clearly demonstrates the impact of inflation on the market.

September CPI Data Forecast and Market Impact

The market expects the core CPI to grow by 0.5% month-on-month in September, lower than August's 0.6%, but the year-on-year increase may reach 6.6%, far exceeding the Federal Reserve's 2% target, and higher than August's 6.3%. The Federal Reserve hopes to see underlying inflation decline to 2% or lower in a clear and sustainable manner.

Regarding the upcoming September CPI data, there may be the following three scenarios:

1. Meets Expectations: If the core CPI rises by 0.5% or 0.4% month-on-month, meeting expectations, it indicates that the period of price increases and interest rate hikes may be nearing its end. However, this still signifies a high level of inflation. The market may breathe a brief sigh of relief, and dollar bulls might take profits. But after the initial reaction, investors may reassess the inflation situation, and Federal Reserve officials may reiterate the need for further interest rate hikes. This could present a new opportunity to buy dollars, and the likelihood of a 75 basis point rate hike in November remains high.

2. Below Expectations: If the core CPI month-on-month increase is 0.3% or lower, it may trigger a substantial rise in the stock market and a significant drop in the dollar. This would prove that the 0.6% increase in August was a one-time phenomenon. The bond market may digest expectations of only a 50 basis point rate hike in November. However, considering the impact of supply chain constraints and rising interest rates on mortgages, the likelihood of this scenario is moderate.

3. Exceeds Expectations: If the core CPI reaches 0.6% or higher again, it indicates that the low increase of 0.3% in July was an exception. The market may once again predict a 100 basis point rate hike in November. If the data reaches 0.7%, it could trigger large-scale dollar buying and a decline in the stock market. Analysts believe this scenario is unlikely, but due to the high risks, it cannot be completely ruled out.

Conclusion

Considering that the market reacted lukewarmly to last week's non-farm payroll data, while the previous two CPI data releases triggered significant fluctuations in the market, the September CPI data this Thursday will undoubtedly become the focus of the market, and its impact should not be underestimated.