US: CPI to support another 75 bps Fed rate hike

It seems that the September CPI report, which will be announced tomorrow, will once again show the illusion of low gasoline prices for the last three months and will be the subject of our analysis based on sticky items rather than the actual indicator. In terminal expectations, headline CPI is expected to decline from 8.3% to 8.1% (0.3% monthly increase), while core CPI is expected to increase from 6.3% to 6.5% (monthly). 0.4% increase expectation) shows that the market is aware of this divergence. This puts forward the need for a multidimensional analytical perspective on inflation from the Fed's point of view.

To elaborate, gasoline prices will be in a direction that largely explains the downward movement in headline inflation. However, it can be expected that this effect will reverse on the threshold of developments after October as a result of the OPEC+ production cut or the cuts in Nord Stream and energy prices will increase again. We estimate that these inflationary effects will be taken into account in October and November. In core prices, excluding energy and food volatile items, high inflation pressure will continue to encompass this month as well. There is a significant uncertainty range here, stemming from both demand and material prices. At the same time, September means a change in season, so price fluctuations are expected. This may cause prices to remain above the previous periods on special discount days (eg Black Friday) in the following months. Of course, we will be watching the similar effect in wholesale prices in terms of input costs.

Rent inflation will likely keep the prices of services firm, which is important because it is an interest-sensitive area, and the situation in real estate prices is important in terms of demand reflection in terms of showing how much the Fed's room for action is. At the same time, this time of year is the contract renewal period, given the seasonal effects. This can cause monthly volatility as periodic spikes come into play. The volatility here may continue until mortgage rates reach levels that will drastically reduce real estate market demand, with a peak rate expected in mid-2023.

CPI and its sub-details. Oil prices may be expected to have an upward impact on CPI after September. Source: Bloomberg, Bureau of Labor Statistics

If we look at the Fed's point of view; The September CPI report will not give policymakers any reason to change course. Some economists argue that the Fed should slow the pace of rate hikes as long-term inflation expectations stabilize, supply chain pressures ease, and a strong dollar cheapens imports. September is the last month in which the effect of low gasoline prices will be reflected, and after that, rising oil prices following the OPEC+'s decision to cut production and the balance to be created by the use of strategic oil reserves by the US creates uncertainty. It is highly probable that headline inflation will still remain high in October. Core inflation, on the other hand, is still more than three times the Fed's 2% target, and the Fed will continue its commitment to raise interest rates until there is a clear slowdown in this area.

Kaynak: Tera Yatırım-Enver Erkan
Hibya Haber Ajansı