As the U.S. Federal Open Market Committee (FOMC) meeting approaches, the last consumer price index (CPI) report will be released on October 14 at 9:30 p.m. KST. With rising oil prices from the Middle East expected to widen overall inflation, the trends in core inflation and the impact of oil price increases are seen as key factors influencing the Fed's decision on further rate hikes.
According to Dow Jones, the U.S. CPI for September is projected to rise 3.6% compared to the same month last year, an increase of 0.2 percentage points from the previous month's 3.4%. The month-over-month increase is expected to be 0.6%, up from 0.4% in the prior month.
In contrast, the core CPI, which excludes energy and food, is anticipated to rise 2.5% year-over-year and 0.2% month-over-month. While the year-over-year increase is slightly higher than the previous month's 2.4%, the month-over-month increase is expected to be lower than last month's 0.3%.
This suggests that while rising oil prices due to geopolitical tensions are pushing overall inflation higher, price pressures excluding energy may remain relatively contained. Last month, escalating military conflicts between the U.S. and Iran led to a more than 14% increase in Brent crude prices throughout September, surpassing $100 per barrel for the first time since July. Additionally, the U.S. Energy Information Administration (EIA) reported a 7.1% spike in gasoline prices during the same period.
As a result, there are concerns that the CPI could exceed expectations. Joe Brusuelas, chief economist at RSM, noted in an interview with CNBC that rising oil prices are driving inflation, stating, "There is significant upside risk to the September CPI." He added, "Typically, when inflation moves in this manner, market prediction models tend to underestimate actual inflation rates."
Low Likelihood of October Rate Hike, but Core Inflation is a Variable
However, overall price stability is expected when excluding energy prices. Therefore, if the September CPI, particularly the core CPI, does not significantly exceed expectations, the likelihood of a rate hike during the FOMC meeting scheduled for October 27-28 is considered low. In fact, the CME FedWatch Tool, which aggregates market expectations for Fed rates, indicates a 23.8% chance of a rate hike this month, compared to a 76.2% chance of maintaining current rates.
UBS forecasts a 3.63% year-over-year increase in the September CPI and a 2.41% rise in the core CPI, suggesting that if these results align with their predictions, the FOMC may have more leeway to observe market conditions.
Previously, Fed officials indicated the possibility of one more rate hike this year after raising rates by 0.25 percentage points at last month's FOMC meeting. With two FOMC meetings remaining this year in October and December, the low likelihood of a rate hike in October suggests that December is currently viewed as the more probable time for an increase.
Additionally, some analysts predict that factors contributing to inflation, such as rising oil prices and AI investments, may gradually ease, leading to reduced inflationary pressures. Jeffrey Schulz, chief investment strategist at Franklin Templeton Institute, stated, "So far, supply-side shocks have led to persistent inflation. However, as we approach 2027, some of these risks may begin to subside."
John Williams, president of the New York Federal Reserve Bank, regarded as the Fed's second-in-command, also stated in a recent interview with Bloomberg that one additional rate hike this year seems appropriate, but there is no immediate need for further increases next year.
However, if the surge in oil prices begins to affect inflation in other sectors beyond energy, the possibility of a rate hike in October and subsequent increases cannot be ruled out. UBS noted, "If the core CPI exceeds expectations, discussions about an October rate hike may resurface."
Moreover, Glenmede, a U.S. asset management firm, highlighted that inflation in services excluding energy was at 3% in August, significantly above the Fed's target of 2%. They emphasized that the key focus should be on whether service inflation becomes entrenched, suggesting that if more inflationary factors exceed the Fed's target, it could indicate a broader spread of inflationary pressures beyond the energy sector.
Following the September CPI release, the upcoming U.S. Producer Price Index (PPI) report on October 15 and a speech by Fed Chair Kevin Warsh on October 16 are expected to provide additional insights into the direction of rates for the FOMC meeting this month.
* This article has been translated by AI.
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