The US September CPI data is about to be released, and the market may fluctuate again.

Recently, the US stock market has experienced significant fluctuations due to inflation data. In the Consumer Price Index (CPI), the month-on-month data of core CPI is particularly important, as a change of 0.1% can have a significant impact on the market. The US CPI data for September, to be released this Thursday, is likely to trigger market turbulence again.

The Importance of CPI Data

Currently, the Federal Reserve is doing everything possible to stabilize prices, even at the expense of the job market to curb inflation, which highlights the crucial role of every inflation data point.

CPI, as an indicator for measuring actual inflation, is the primary reference for observing price increases. Although the Personal Consumption Expenditures Index (PCE) is the inflation indicator preferred by the Federal Reserve, due to its later announcement timing, CPI has effectively become the main basis for assessing price levels.

In the composition of CPI, core CPI is given more importance than overall inflation data. Although global politicians are quite concerned about fluctuations in fuel prices, the market and the Federal Reserve are more focused on potential inflation trends. Since the Federal Reserve began raising interest rates in March of this year, the month-on-month changes in CPI have received more attention than year-on-year changes.

The Euro/US Dollar chart since 2021 clearly shows the profound impact of inflation on the market.

September CPI Forecast and Three Possible Scenarios

The market expects the core CPI to increase by 0.5% month-on-month in September, which is lower than August's 0.6%, but the year-on-year growth rate could reach 6.6%, far exceeding the Federal Reserve's 2% target and higher than August's 6.3%. The Federal Reserve hopes to see potential inflation data consistently stabilize at 2% or lower.

The following are three possible scenarios and their potential impacts:

1. Meets Expectations: If the core CPI rises by 0.5% or 0.4% month-on-month, it will meet market expectations, suggesting that price increases and the interest rate hike cycle may be nearing an end. However, even a 0.4% month-on-month growth still implies a high year-on-year increase. The market may temporarily breathe a sigh of relief, and dollar bulls may choose to take profits. But after the initial reaction, investors may reassess the inflation situation, and Federal Reserve officials may reiterate the need for further rate hikes.

2. Below Expectations: If the core CPI month-on-month increase is 0.3% or lower, it could trigger a significant rise in U.S. stocks and a sharp decline in the dollar. This would prove that the 0.6% increase in August may have been a one-time event. The bond market may start to price in the expectation that the Federal Reserve will only raise interest rates by 50 basis points in November. However, considering the impact of supply chain pressures and rising interest rates on mortgages, the probability of this scenario is moderate.

3. Exceeds Expectations: If the core CPI month-on-month increase reaches 0.6% or higher again, it will indicate that the low increase of 0.3% in July was an exception. The market may re-expect a rate hike of around 100 basis points in November. If the increase reaches 0.7%, it could trigger a large-scale buying of dollars and a drop in U.S. stocks. Although analysts believe the likelihood of this scenario is low, it cannot be completely ruled out due to its potential high risk.

Conclusion

Considering the market's muted reaction to last week's non-farm payroll data, and the significant market fluctuations that followed the release of the previous two CPI data, the upcoming September CPI data to be released this Thursday will undoubtedly become the focus of the market, and its impact should not be underestimated.