The Core Consumer Price Index (CPI) is only projected to increase by 3.1% in September over the previous year. That’s equal to the prior month’s pace. This key indicator, which excludes volatile food and energy prices, is a focal point for economists and financial markets alike. Consumers should expect a fairly tepid monthly increase of 0.3% that might move the needle on market expectations.
These figures, known as Core CPI data, are compiled and published by the U.S. Bureau of Labor Statistics (BLS). This is a critical measure analysts will be watching to see, with a major upside surprise likely leading to a significant market response. Investors are laser-focused on the impact of U.S. President Donald Trump’s tariffs. They are seeking to know how these tariffs influence prices in the Core CPI, which is vital for understanding long-term inflation trends.
Central banks—at least the serious, independent ones—want to control inflation (even Core CPI) to stay in the manageable range of 2%. When the Core CPI rises above this level, it usually results in rising interest rates. A fall below 2% will likely lead to rate decreases or imminent rate cuts. This new dynamic illustrates how closely the Core CPI will be watched and referenced in framing the Fed’s future monetary policy decisions.
Implications of Core CPI Data
The role of a flat Core CPI in leading a 0.4% month-over-month headline CPI will probably be the most impactful. According to analysts from TD Securities, “A still firm core should again result in a steady headline CPI at 0.4% m/m as a jump in the energy segment likely also provided a notable boost to September prices.”
Market participants will be listening carefully for any material surprises from these forecasts. A Core CPI reading of 0.5% could lead investors to reevaluate the likelihood of a Federal Reserve rate cut in December. Indeed, given fears about inflation direction and what that means for future economic growth, the excitement around these numbers speaks to greater worries about inflation’s course.
According to Eren Sengezer, a FXStreet analyst, the technical outlook for the U.S. dollar is rather positive given these economic fundamentals. He states, “The technical outlook points to a bullish tilt in the short-term outlook. The Relative Strength Index (RSI) indicator on the daily chart climbs toward 60 and the USD Index holds comfortably above the 20-day, the 50-day and the 100-day Simple Moving Averages (SMAs).”
Market Reactions and Predictions
This possible upside surprise in next week’s Core CPI data has triggered a flurry of cautious optimism among investors. Sengezer warns that “the data is unlikely to be a game changer for next week’s Fed meeting, as the majority of Fed members assume that any tariff effect on inflation will be temporary anyway.” Investors are preparing for dramatic changes in the marketplace. Consensus is that any upcoming, short-term shifts in monetary policy will be modest.
If Core CPI comes in stronger than anticipated, it would be likely to spark a significant shift in the market perception active interest rates. Analysts continue to stay on their toes, eyeing resistance and support levels, trying to gauge the new market direction being shaped by these economic indicators.
“On the upside, the Fibonacci 23.6% retracement of the January-July downtrend aligns as the next immediate resistance level at 99.50. A daily close above this level could attract technical buyers and open the door for a leg higher toward 100.00 (round level) and 100.80 (200-day SMA).”
He highlights potential downside risks: “Looking south, the 20-day SMA aligns as an interim support level near 98.50 ahead of 98.10-98.00 (50-day SMA, 100-day SMA, round level) and 96.40 (end-point of the downtrend).” These technical indicators will act as major obstacles as traders and investors look to navigate the various upcoming scenarios after this potentially market-moving Core CPI.