The US September CPI data is about to be released, and the market is focusing on three possible scenarios.

Recently, the U.S. stock market has experienced significant fluctuations due to inflation data. Even minor changes in the Core Consumer Price Index ( CPI ) month-on-month data could have a substantial impact on the market. The U.S. CPI data for September, which is set to be released this Thursday, is likely to trigger market fluctuations again.

The Importance of CPI Data

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

CPI, as a measure of actual inflation, is the primary reference for observing price increases. Although the Personal Consumption Expenditures Index ( PCE ) is the inflation indicator preferred by the Federal Reserve, due to its lagging publication, CPI has become the main indicator for evaluating price levels.

Among the various indicators of CPI, core CPI is more closely followed than the overall inflation data. Although global political figures are quite concerned about changes in fuel prices, the market and the Federal Reserve are more focused on potential inflation trends. Since the Federal Reserve began raising interest rates in March of this year, the month-on-month changes in CPI are more valuable for reference than the year-on-year changes.

Market forecasts indicate that the U.S. core CPI will grow by 0.5% month-on-month in September, down from 0.6% in August, but the year-on-year increase may reach 6.6%, far exceeding the Federal Reserve's 2% target, and higher than August's 6.3%. The Federal Reserve hopes to see potential inflation data sustainably decline to 2% or lower.

Three Possible Scenarios of September CPI Data and Their Impact

1. Meets expectations

If the core CPI rises by 0.5% or 0.4% month-on-month, it meets expectations. This indicates that the rise in prices and the Federal Reserve's interest rate hikes may be nearing an end. However, even a month-on-month increase of 0.4% means a year-on-year growth rate of 5%, and inflation remains high.

The market may first experience a brief relief, and dollar bulls may take profits. However, investors may then reassess the inflation situation, and Federal Reserve officials may reiterate that inflation is still too high and needs further rate hikes. This could become a new opportunity to buy dollars, with the Fed possibly raising rates by another 75 basis points in November.

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. This would demonstrate that the 0.6% increase in August was a one-time phenomenon, and the bond market may anticipate that the Federal Reserve will only raise interest rates by 50 basis points in November.

However, considering the impact of supply chain tightness and rising interest rates on mortgages, the likelihood of core CPI data being below expectations is moderate.

3. Exceeds expectations

If the core CPI month-on-month increase reaches 0.6% or higher again, it indicates that the low increase of 0.3% in July was an exception. The market may expect an interest rate hike of around 100 basis points in November.

If the core CPI rises by 0.7%, it could trigger large-scale 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 the high potential risks.

Conclusion

Given the market's muted response to last week's non-farm payroll data, and the significant volatility triggered by the previous two CPI data releases, the September CPI data set to be released this Thursday will be closely watched, and its impact could be quite significant.