Headline and core U.S. inflation gap seen widening in September - Truflation

Investing.com - Headline U.S. consumer price growth is tipped to have risen to 3.6% in September, widening a gap with the underlying inflation figure, according to estimates from alternative data provider Truflation.

So-called “core” consumer prices, which strip out volatile items like food and fuel, are seen coming in at 2.4%, Truflation predicted.

While the difference between the anticipated overall and core readings could suggest the outsized impact of surging energy expenses, “tariffs, freight and high input costs raise the risk of additional consumer goods pass-through towards year end,” Truflation flagged.

Investors are gearing up for the release on Wednesday of the official U.S. consumer price index, a key measure of inflation in the world’s largest economy. The report could provide insight into how the Federal Reserve will approach monetary policy over the remainder of the year.

Last month, the Fed lifted interest rates by a quarter of a percentage point, with many policymakers citing a desire to corral elevated inflationary pressures. While the central bank is not expected to raise rates again at its next meeting this month following a batch of soft employment data in September, it is widely projected to hike borrowing costs at its final gathering in December, CME FedWatch data showed.

“The Fed faces higher supply driven inflation alongside a weakening labor market,” Truflation said. “Further tightening cannot directly resolve energy or import supply shocks but broader pass-through into core goods and services could justify maintaining restrictive policy.”

Oil supply disruptions out of the Middle East, largely stemming from a nearly eight-month-old war between the U.S. and Iran, have spurred a sharp uptick in crude prices. Although recent shipping data suggests that some Gulf flows are recovering, signs of an expanding regional conflict have kept oil prices higher. Over the weekend, Iran-backed Houthi militants in Yemen launched attacks on key infrastructure in Saudi Arabia, while tankers in the Strait of Hormuz were once again targeted.

Prices for refined products, notably diesel, have subsequently spiked, threatening to drive up the costs for transportation services and farming in the process. Gasoline pump prices have also soared.

Coupled with runaway spending on artificial intelligence data centers and U.S. President Donald Trump’s aggressive trade stance, a host of forces could support price gains in the months ahead.

“Inflation is not yet broadening decisively at the consumer level, but the upstream pipeline is becoming more inflationary. Energy and tariffs threaten renewed goods inflation, while weaker employment and wage growth limit demand driven pressures. The key risk is supply costs spreading into core inflation,” Truflation said.

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