The consumer price index will probably show that headline inflation moderated in September. But core inflation — which excludes food and energy categories — likely crept up to between 3% and 4% on an annualized basis, thanks to a jump in used-car prices, Bloomberg economists Anna Wong and Stuart Paul wrote Wednesday in a preview of the release.
“Our baseline is for the Fed to hold rates steady for the rest of the year, but we see non-negligible risks of another rate hike, something the market is probably underpricing.”Slowing core inflation over the summer had raised hopes that the Fed would cease rate increases after lifting the target range for its benchmark in July to 5.25% to 5.5%. But high gasoline prices pushed the August reading up 0.
Inflation will remain sticky in some core services categories, such as car insurance, and physician and hospital services. Wong and Paul warned increasing tensions in the Middle East may spur supply shocks and boost energy prices. If oil prices reach $100 a barrel, for example, headline CPI inflation could reach 4% by the end of this year, the economists said.