Amidst a dense interplay of macroeconomic policies and economic data, the evolution of US inflation has become the market's primary focus. The US Consumer Price Index (CPI) data, to be released at 8:30 PM Beijing time on Wednesday (October 14th), will undoubtedly be a crucial test of inflationary pressures. With energy costs continuing to rise and becoming a key driver of soaring prices, economists generally expect this report to reveal the severity of the ongoing and escalating inflation.

Inflation indicators are rising across the board, with energy costs playing a key role.

Economists surveyed by Dow Jones Newswires predict that the overall Consumer Price Index (CPI) will rise 0.6% month-over-month in September, and surge significantly by 3.6% year-over-year . This substantial year-over-year increase clearly demonstrates that the pace of price increases across the United States is accelerating and is further deviating from the Federal Reserve Chairman's 2% long-term price target. Meanwhile, excluding volatile food and energy prices, core inflation is expected to rise 0.2% month-over-month and 2.5% year-over-year . Although the month-over-month data shows a slight slowdown compared to the previous month, the year-over-year increase still clearly signals that upward pressure on prices has not subsided, and the stickiness of inflation has once again become a hot topic of discussion.

Upside risks have already emerged, and the energy transmission effect should not be underestimated.

Joe Brusuelas, chief economist at tax services firm RSM, has explicitly warned that soaring prices related to the oil supply chain could push September's overall CPI to a higher-than-expected extreme. Since the outbreak of the Iraq War earlier this year, energy costs have become one of the most destructive drivers of US inflation. Last week, US President Trump announced the easing of restrictions on Russian diesel exports in an attempt to boost global oil trade, but analysts generally believe this move is unlikely to substantially reverse the high oil price level. Brent crude, the global benchmark for oil pricing, rose 7.92% in September, pushing the overall third-quarter increase to nearly 33.52%. He points out that current inflation models are highly likely to underestimate the real risks of price increases, and historical experience shows that in the face of such volatile price movements, actual data readings often significantly exceed previous market predictions.

With widespread inflationary pressures, the pace of interest rate hikes is unlikely to stop easily.

Robert Sockin, chief U.S. economist at asset management firm PGIM, further warned that persistently high and robust oil prices are highly likely to drive up the base prices of non-energy goods and services across the board through cost transmission mechanisms. In such a transmission scenario, it will become increasingly difficult for the Federal Reserve Chairman to define a surge in energy prices as a short-term disturbance requiring no monetary policy intervention. After ending a three-year interest rate stagnation and implementing its first rate hike in three years last month, the Fed Chairman clearly signaled in the meeting minutes that there is still a real need for further rate increases. Data from the CME FedWatch Tool shows that the futures market is widely betting that the Fed will initiate another rate hike at its December policy meeting. Sockin acknowledged that in the current economic environment, there are increasing reasons to support further tightening of interest rates. Although there are still disagreements about the precise timing of policy implementation, the overall long-term direction of policy toward higher interest rates is beyond doubt.

Conclusion

The CPI data to be released on Wednesday is not only an important barometer of macroeconomic conditions, but also the last crucial inflation reading before the November US midterm elections, and its final result may profoundly influence the political and economic landscape in Washington. In addition, the Producer Price Index (PPI), which measures wholesale inflationary pressures, will also be released on Thursday. Economists expect it to rise 0.6% month-on-month and 5.5% year-on-year. Both indicators suggest that inflationary pressures are still steadily accelerating, and the Federal Reserve Chairman's policy balance is facing significant downward pressure.