A US economics team at an investment bank expects September core CPI to ease to 0.20% month-on-month, with the slowdown led by softer core services and supercore; supercore is pencilled in at 0.24% after contributing to August’s rise. Core services is seen at 0.22% m/m, while discretionary services are projected to add firmness, with lodging up 1.4% and airfares rising 2.1%. Core goods and shelter are both expected to rebound slightly, lifting risks from vehicle prices and AI-related goods, while leaving year-on-year core CPI broadly unchanged at 2.4%.
On the preferred gauge, the forecast implies 0.23% m/m for core PCE, a touch lower than the 0.25% increase in August. Longer term, core inflation is projected to trough at 2.4% before ending 2026 at 2.7% y/y, while headline is expected to reach 3.9% by end-2026 after peaking in May at 4.2%, with the path tied to how the Middle East conflict resolves. Inflation progress is expected to resume by mid-2027.
Short-Term Inflation Trends and Market Positioning
We are closely watching the upcoming September inflation data, which we expect to show core CPI slowing to 0.20% month-on-month. This would keep the annual core inflation steady at 2.4%, suggesting that price pressures are stabilizing but not entirely defeated. Derivative traders should prepare for short-term volatility in interest rate futures as the market prices in the Federal Reserve’s next policy moves.
We anticipate a minor rebound in shelter costs and vehicle prices, offset by a slowdown in supercore inflation to 0.24%. Traders can exploit these sector-specific shifts by utilizing options on consumer discretionary and real estate exchange-traded funds. Hedging against sudden spikes in airline and lodging costs is also wise, given the projected 2.1% and 1.4% monthly increases in these areas respectively.
Geopolitical Risk, Headline Inflation, and Central Bank Outlook
With geopolitical tensions in the Middle East keeping Brent crude futures volatile around $78 a barrel, headline inflation remains highly sensitive to energy shocks. We project headline inflation could climb toward 3.9% by the end of 2026 if these global disruptions persist. To manage this risk, we recommend holding long call options on energy commodities or short positions on Treasury futures to cushion against rising yields.
The Federal Reserve has transitioned to a more gradual rate path, with the benchmark interest rate currently targeted at the 4.75% range following autumn policy adjustments. Because a 0.23% core PCE reading is unlikely to drastically alter the central bank’s trajectory, aggressive rate-cut bets should be scaled back. Instead, we favor neutral-to-bearish strategies on short-term interest rate contracts over the coming weeks as inflation progress remains bumpy until mid-2027.
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