The US September CPI data is about to be released, and the market reaction may cause a stir.

Recently, the US stock market has experienced severe fluctuations due to inflation data. In particular, the month-on-month data of the core Consumer Price Index (CPI), with every 0.1% change potentially having a significant impact on the market. The US CPI data for September, to be released this Thursday, is likely to trigger strong reactions in the financial market once again.

Importance of CPI Data

Currently, the U.S. Federal Reserve is doing everything possible to stabilize prices, even at the cost of sacrificing the job market to reduce inflation, which highlights the critical nature of every inflation data.

CPI, as an indicator of actual inflation, is the preferred tool for observing price trends. Although the Personal Consumption Expenditures Index (PCE) is the inflation indicator favored by the Federal Reserve, the CPI has actually become the main reference for assessing price levels due to its later release time.

Among the components of CPI, core CPI is more emphasized than overall inflation data. Although the global political arena is quite concerned about fluctuations in fuel prices, the market and the Federal Reserve are more focused on the underlying inflation trends. Since the Federal Reserve started raising interest rates in March of this year, the month-on-month changes in CPI have attracted more attention than year-on-year changes.

September CPI Data Expectations and Possible Scenarios

The market expects the core CPI in the U.S. to increase by 0.5% month-on-month in September, although this is lower than August's 0.6%. However, the year-on-year increase may reach 6.6%, far exceeding the Federal Reserve's target of 2% and higher than August's 6.3%. The Federal Reserve hopes to see potential inflation data consistently stabilized at 2% or lower.

For the upcoming September CPI data, three possible scenarios can be anticipated:

1. Meets Expectations: If the core CPI rises by 0.5% or 0.4% month-on-month, meeting market expectations, it may suggest that the price increase and the interest rate hike cycle are nearing an end. However, even a 0.4% month-on-month growth would imply a year-on-year increase of 5%, indicating that inflation remains high. The market may experience a brief profit-taking in dollars, but then may reassess that the inflation level is still too high, and the Federal Reserve may continue its tough stance.

2. Below expectations: If the core CPI month-on-month increase is 0.3% or lower, it could trigger a significant rise in the stock market and a sharp decline in the dollar. In this case, the 0.6% increase in August may be regarded as a one-time event, and the market might begin to expect the Federal Reserve to raise interest rates by only 50 basis points in November. However, considering the current economic environment, the probability of this situation occurring is moderate.

3. Beyond Expectations: If the core CPI month-on-month increase reaches 0.6% or higher again, the market may reconsider the possibility of a 100 basis point rate hike in November. Especially if the data reaches 0.7%, it could trigger massive dollar buying and a drop in the stock market. Although analysts believe the likelihood of this scenario is low, it cannot be completely ruled out due to its potential impact.

Conclusion

Considering the market's lukewarm response to last week's non-farm payroll data and the significant volatility triggered by the previous two CPI data releases, this Thursday's release of the September CPI data will be closely watched. Regardless of the outcome, this data could have a substantial impact on the financial markets, and investors should pay close attention and be prepared accordingly.