Next Wednesday, the U.S. September CPI report is due.
Barclays forecasts headline inflation at 3.7% year over year, up 0.3 percentage points from August’s 3.4%.
“Inflation’s exploding again, the Fed’s going to hike rates, and BTC is doomed.”
Core CPI is forecast to rise 0.24% month over month, down from August’s 0.29%.
Headline inflation is jumping, while core inflation is falling.
Put those two numbers together and think about it: what doesn’t add up?
The answer is just one thing: energy.
Gasoline prices surged 9.23% month over month in September, and were up 34.8% year over year. Heating oil was even more extreme, up 38.8% year over year.
Why the jump? The conflict in the Middle East has been going on for over a year. Traffic through the Strait of Hormuz fell from more than 20 commercial ships at the end of September to single digits, and the U.S. imposed new sanctions on 17 Iranian oil tankers. WTI is now at $91.85 a barrel and Brent at $104.72, and prices just won’t come down.
Oil prices have pushed headline inflation higher. It has absolutely nothing to do with an overheated economy.
So why is core inflation falling?
Wireless communication service prices jumped unusually sharply in August, adding about 0.1 percentage points to core CPI in a single month. Verizon’s price increases were more modest in September, so this component naturally came back down.
On one side, an external oil price shock is pushing up the headline figure; on the other, core components are easing on their own.
Will the Fed hike rates because gasoline prices are rising?
The pass-through from energy to core inflation is limited. Airfares are indeed rising, and jet fuel prices are up nearly 90% year over year, but Morgan Stanley says airlines’ cost pass-through “may already be close to complete.”
The increases that were going to happen have already happened. There’s no new story from here.
When CPI comes out next Wednesday, there are two scenarios:
Scenario one: Core CPI ≤ 0.2%. An October rate hike is completely off the table, and Treasury yields fall. BTC is hovering around $83,000 now, with a chance of reaching $85,000–$87,000.
Scenario two: Core CPI ≥ 0.3%. The market will focus on “sticky inflation,” and the odds of an October rate hike will climb from less than 20% now to 30%–40%. BTC could test $82,000 again, or even $80,000.
But whichever scenario plays out, you should understand one thing—
3.7% is the headline for people who don’t understand the details.
2.5% is the figure the Fed uses to make decisions.
The Fed looks at core inflation, the trend, and whether inflation is likely to become self-reinforcing. Gasoline prices rising 9% in a month? It knows that’s down to war and hurricanes, not overheated demand.
Barclays has already said it: the Fed will most likely hold steady in October, postponing a rate hike until December.
Barclays forecasts headline inflation at 3.7% year over year, up 0.3 percentage points from August’s 3.4%.
“Inflation’s exploding again, the Fed’s going to hike rates, and BTC is doomed.”
Core CPI is forecast to rise 0.24% month over month, down from August’s 0.29%.
Headline inflation is jumping, while core inflation is falling.
Put those two numbers together and think about it: what doesn’t add up?
The answer is just one thing: energy.
Gasoline prices surged 9.23% month over month in September, and were up 34.8% year over year. Heating oil was even more extreme, up 38.8% year over year.
Why the jump? The conflict in the Middle East has been going on for over a year. Traffic through the Strait of Hormuz fell from more than 20 commercial ships at the end of September to single digits, and the U.S. imposed new sanctions on 17 Iranian oil tankers. WTI is now at $91.85 a barrel and Brent at $104.72, and prices just won’t come down.
Oil prices have pushed headline inflation higher. It has absolutely nothing to do with an overheated economy.
So why is core inflation falling?
Wireless communication service prices jumped unusually sharply in August, adding about 0.1 percentage points to core CPI in a single month. Verizon’s price increases were more modest in September, so this component naturally came back down.
On one side, an external oil price shock is pushing up the headline figure; on the other, core components are easing on their own.
Will the Fed hike rates because gasoline prices are rising?
The pass-through from energy to core inflation is limited. Airfares are indeed rising, and jet fuel prices are up nearly 90% year over year, but Morgan Stanley says airlines’ cost pass-through “may already be close to complete.”
The increases that were going to happen have already happened. There’s no new story from here.
When CPI comes out next Wednesday, there are two scenarios:
Scenario one: Core CPI ≤ 0.2%. An October rate hike is completely off the table, and Treasury yields fall. BTC is hovering around $83,000 now, with a chance of reaching $85,000–$87,000.
Scenario two: Core CPI ≥ 0.3%. The market will focus on “sticky inflation,” and the odds of an October rate hike will climb from less than 20% now to 30%–40%. BTC could test $82,000 again, or even $80,000.
But whichever scenario plays out, you should understand one thing—
3.7% is the headline for people who don’t understand the details.
2.5% is the figure the Fed uses to make decisions.
The Fed looks at core inflation, the trend, and whether inflation is likely to become self-reinforcing. Gasoline prices rising 9% in a month? It knows that’s down to war and hurricanes, not overheated demand.
Barclays has already said it: the Fed will most likely hold steady in October, postponing a rate hike until December.